April 12, 2006
Enterprise Social Fund First to Tap Corporate Community for Community Investing
by Bill Baue
The fund partners Enterprise Community Partners, which will manage the portfolio, with Deutsche
Bank, which will seek investment from socially responsible companies and individuals.
Community investing, traditionally a realm inhabited by socially responsible investing (SRI)
practitioners and banks required to support community development by the Community Reinvestment Act
(CRA), is taking first steps
into the corporate world. Last week saw the launch of the Enterprise Social Fund, a joint venture
between global financier Deutsche Bank and community development financial institution (CDFI) Enterprise Community
Partners. With a goal of raising $15 million, Deutsche Bank is seeking $12
million in investments from socially responsible companies and $3 million from high net-worth
"As far as we understand, this is the first domestic community
investing fund geared toward companies," said Michael Sloss, vice president of the Enterprise
Community Loan Fund, a supporting non-profit entity of Enterprise Community Partners that will
manage the fund. "We partnered with Deutsche Bank because they've had success in an international
microfinance fund doing this kind of thing."
The idea for the fund developed over the
past two years in discussions between Gary Hattem, managing director of the community development
finance group at Deutsche Bank, Bart Harvey, chair and CEO of Enterprise, and Kristin Faust,
president of the Enterprise Community Loan Fund.
"We have had an aggressive growth plan
in place for the community fund through 2010," Mr. Sloss told SocialFunds.com.
we had to develop new kinds of capital to reach those goals of growth and it wasn't going to happen
through banks that have to loan under the community Reinvestment Act, so we were looking for ways
of attracting larger volumes of capital."
Deutsche Bank was doing just that with its
Global Commercial Microfinance Consortium, a $75 million fund launched in November 2005 with
support from such companies as Merrill Lynch, Munich Re, and State Street. Deutsche Bank is so
confident it can deliver similar corporate support for the Enterprise Social Fund that it is
guaranteeing 20 percent of the fund's total capitalization. The fund is setting aside one percent
of principal for loss reserves--over its 23-year history of offering community development loans,
Enterprise has experienced an annual average loan loss rate of less than one percent.
Community investing typically offers under-market-rates of return, which are counterbalanced by
social returns. The Enterprise Social Fund offers companies a 4 ½ percent rate of return, and
individuals a 2 ½ percent rate. As for social returns, the fund seeks to help finance the
construction or rehabilitation of more than 3,000 homes for low- and moderate income families over
the next five years.
The fund will also support community development projects such as
neighborhood-based child care facilities or community centers, which low-income neighborhoods in
urban areas often lack. And geographically, the fund will have a national reach, as
Enterprise has offices throughout the country, from Atlanta to St. Louis to Los Angeles to Seattle
to Rochester, New York.
While the fund is setting a five-year lifespan for itself in order
to give investors a concrete terms for return of their capital, success will spur continued pursuit
of this business model.
"If the fund works the way we expect it to, we don't expect it to
just end," said Mr. Sloss. "We can replicate it and do it again with a larger pool of investors
and a larger amount of capital to build that growth we're looking for."