The quest for market-beating returns, not to mention the broader retreat from racial equity and DEI, would seem to make quaint an annual list of funds that mostly offer returns in the low single digits.
Not so, says Jennifer Astone of Collective Action for Just Finance, which this week announces its fifth cohort of funds dubbed the “Transformative 25.” The annual round-up features community-rooted funds that are shifting the flow of capital toward social, environmental, and economic justice.
This year’s “T25” list focuses on place-based funds, indigenous-led funds, and funds focused on democratic ownership. Many are deploying integrated capital, a combination of various types of finance alongside non-financial resources. According to Collective Action for Just Finance, these models reflect the creative capital that is needed to achieve a more just and equitable economy.
“There is a quiet drumbeat inside philanthropy that recognizes that impact investing is not going far enough and we need to do impact-first investing,” said Astone, whose Integrated Capital Investing in Aptos, Calif. helps foundation clients expand their toolkits beyond grants. “If you’re only investing in market-rate funds, you’re leaving impact on the table.”
Place-based
From Alaska to Alabama to Indonesia, 17 of the funds in this year’s T25 list identify as place-based funds, founded on the belief that communities are best equipped to shape their own futures.
Seven Indigenous-led funds made this year’s list, the highest number to date. These funds serve Indigenous communities in varied ways, from developing clean energy infrastructure on tribal lands to supporting Native led-businesses or tribal-owned enterprises.
And eight funds focus on democratic ownership, such as employee ownership, homeownership, community real estate, and land access for farmers. These models are reimagining who owns wealth and how it is structured and shared.
“The first thing we look at is not the return on investment, but the impact they are making on the community. Are they creating quality jobs, enhancing community well-being, environmental well-being?” Astone told ImpactAlpha. “The mission and the outcome of the fund has to be focused on that.”
A handful of the funds manage to offer venture-style returns, along with impact. Nine of the funds are able to accept non-accredited investors, suggesting a growing number of impact options for retail investors.
Transformative 25
To be included in the T25, funds must meet four out of the following five criteria:
- Social, relational, and ecological returns. For example, Mitra BUMMA supports Indigenous-led businesses that protect the environment and preserve cultural heritage.
- Ownership and Governance. Seacoast Trust fosters a regenerative, place-based economy for Tlingit, Haida, and Tsimshian peoples. It is housed at a Native CDFI and has an Investment Committee made up of Alaska Native leaders with expertise in finance and community development.
- Integrated capital. The Fund for Jobs Worth Owning offers training alongside mezzanine financing, deferred loans, and lines of credit for businesses transitioning to worker ownership and cooperative models.
- Creative finance. Community Credit Lab expands access to capital for entrepreneurs who would not qualify for traditional bank loans. Its nontraditional credit evaluation methods assess a borrower’s character, cash flow, and community impact, and repayment terms reflect entrepreneurs’ performance and financial means.
- Transformative mission and diverse team. Clarke Street Fund is a Black queer-led regenerative fund that is revitalizing Black communities in Alabama. It provides resources to entrepreneurs, artists, land stewards, and housing advocates.
Across the board, the T25 funds boast diverse leadership teams who understand their communities, identify overlooked investment opportunities, and offer culturally appropriate support.
About half of the funds that applied for inclusion in this year’s list are growing or mature funds. While the average size of funds raised is $5 million, seven in 10 of the funds say they plan to grow to beyond $15 million in size.
T25 will release the full list of this year’s funds, along with a report on trends and insights gleaned from selecting this year’s cohort, in a webinar tomorrow. Register here.
