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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 individuals.

"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 knew 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 percent rate of return, and individuals a 2 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."

 

 
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