December 27, 2002
Helping People Help Themselves: A Conversation with F.B. Heron's Luther Ragin
by William Baue
Luther Ragin explains why and how the F.B. Heron Foundation commits a whopping 18 percent of its
total assets toward community investment projects (part one of a two-part article).
The Social Investment Forum (SIF) urges socially responsible investment (SRI) firms, institutional
investors, and individuals to commit one percent of their portfolios to community investment. This
modest allocation is large compared to that of mainstream investment strategies, which generally do
not participate in community investing. However, New York City-based F.B. Heron Foundation commits a significantly
higher percentage of its portfolio to community investment as a means of advancing its mission.
SocialFunds.com recently spoke with F.B. Heron Foundation's vice president for social investing,
Luther M. Ragin, Jr., to discuss the organization's community investing strategy.
SocialFunds.com: What is F.B. Heron's mission?
Luther Ragin: The mission of the
F.B. Heron Foundation is to help people and communities to help themselves. In that connection,
our focus is on wealth creation strategies for low-income communities and people. And those
strategies are specifically around home-ownership, enterprise development, access to capital,
affordable accredited childcare, and then comprehensive strategies that may blend a number of these
SF: What percentage of your investments is in community investment?
LR: As of the end of November, our investments and commitments were $42 million, which amounts
to about 18 percent of our $230 million in total assets.
SF: That's a significantly
higher percentage than even many SRI funds. What is behind your decision to commit such a high
percentage to community investment?
LR: I should point out that although the foundation
was established in 1992, its commitment to mission-related investing as a component of its overall
strategy is only five years old. So since 1997, our focus has encompassed mission-related
investing [making investments that are aligned with an organization's mission], grounded in the
strategies I mentioned earlier.
SF: Could you explain why F.B. Heron made such a bold
shift to mission-related investment?
LR: Rather than limiting its mission activities to
the traditional five percent grant payout, the board took the position that it wanted to make a
broader range of the assets of the foundation available to support the mission.
is the range of your community investment activity?
LR: We've invested across the
spectrum. We consider grant-making an investment, particularly since 80 percent of our grants are
in the form of general operating support for the high-performing groups we engage with.
Next, we move across to program-related investments [PRIs], which are below-market and thus
charitable and concessionary in nature, and can include anything from insured deposits, to senior
loans, to subordinated loans, to equity investments. Then comes market-rate, so-called double
bottom line investments, which seek a risk-adjusted market rate of return consistent with our
mission interests and also have the same asset-class distribution: insured and uninsured deposits,
loans, subordinated debt, private equity, etc…. There is a wide range of asset classes that
we choose to be active in, both in the below-market area and the market-rate area.
Is community investment a term you would apply to all three categories: grant-making; below-market
PRIs; and market-rate double bottom line investments?
LR: That's correct. I should point
out that the 18 percent statistic cited earlier covers only mission-related investments with
financial returns: PRIs, which account for about a third of that $42 million, and double bottom
line investments, which account for about two thirds of the $42 million. The $10.5 million we
invested in grant-making this year is not included in that 18 percent.
SF: Could you
choose an example of an investment that illustrates the work you do?
LR: I think some of
the best examples actually might be from our 2001 Annual Report, where we
specifically highlighted five organizations.
SF: Could you speak in detail about one of
LR: Sure. The Community
Reinvestment Fund in Minneapolis has been around for some time, and its primary mission is to
create a secondary market in economic development loans in order to increase the flow of capital to
inner-city and rural communities. It simply purchases and packages loans from a wide range of
Community Development Corporations [CDCs], Community Development Financial Institutions [CDFIs],
and quasi-governmental development organizations and securitizes those assets by selling them to
institutional investors around the country, requiring that those proceeds are then reinvested by
those organizations in new loans and investments in their communities.
with the Community Reinvestment Fund in a number of ways. For example, early on we engaged in
targeted grant-making to increase their research and development capacity and to support the
building of the infrastructure necessary to create an efficient origination and distribution
capacity. We also made a PRI in the form of a senior loan to allow them to warehouse loans that
they were purchasing from local originators. And finally, through our endowment, we've actually
purchased market-rate, investment-quality (although unrated) notes for our portfolio in the form of
the securitized private placements they've packaged. So here's an example where, with one
organization, we've used all three categories of mission-related investments.
Community Investment Pays: More
Conversation with F.B. Heron's Luther Ragin