Asset Allocation, Asset Managers, Endowments/Foundations, Institutional Investors

IA Strategy: Ford Foundation Embraces Affordable Housing, Financial Services

The Mission Related Investment fund at the $13 billion Ford Foundation is seeking investments that support the preservation of affordable housing in the U.S. and expanded access to vital financial services to low-income households in the Global South. According to Christine Looney, deputy director of mission investments, investments in these sectors will be administered through the Foundation’s $1 billion Mission Related Investment (MRI) fund, which is part of its Mission Investments program.

Christine Looney, deputy director of mission investments, The Ford Foundation

The goal of the fund, which was launched in April 2017, is to generate positive social returns along with attractive financial returns, Looney said. “We are also seeking to advance issues of diversity, equity and inclusion, paying attention to the composition of the fund team as well as where they invest and with what values,” she said.

The team has made $50 million in aggregate commitments to funds that support affordable housing projects in the U.S., as part of its national strategy, and to funds that advance inclusion financial in the Global South, including Latin America, Africa and developing countries in Asia. The fund expects to close on its 6th commitment in December, raising the amount of aggregated committed capital to $75 million.

Mission Investments also expects to recommend several new investment opportunities by year’s end and expects to commit another $75 million to $100 million in 2019. No financial target has been set for the fund, but the Mission Investments expects the fund, on a portfolio basis, to generate sufficient risk-adjusted returns to contribute to the foundation’s payout requirements, adjusted for inflation. The MRI fund’s $1 billion, which will be invested over a 10-year period, once fully allocated, would represent around 7.5% of Ford’s total endowment, based on the current endowment value.

The MRI fund currently has commitments with five impact managers, and by year end will  secure commitments with two to three more managers. The five asset managers in the MRI portfolio are Jonathan Rose Companies, Avanath Capital Management, Capital Impact Partners, LeapFrog and Elevar Equity.

Housing Preservation Strategy

Within Mission Investment’s affordable housing preservation strategy, the Ford Foundation is working with managers targeting returns of approximately 9%, with annual distributable cash flow of 5-7% once properties are stabilized. “The investment does provide some liquidity—which is positive—but many factors come into play in the strategy, such as our long history in affordable housing and the need for preservation,” Looney noted.

When choosing managers for the fund, “the MRI team looks for managers with track records of delivering financial returns and impact. The team is currently reviewing mangers with value-add strategies, where they can make operational improvements to the properties—including green building initiatives—include social services for residents and preserve affordability of housing for low-income residents,” Looney said. “Several of the managers leverage tax incentives and federal and state subsidies to ensure the affordability of the property or units,” she noted.

The financial downturn in 2007 exacerbated the lack of available affordable housing in the U.S., Looney noted. “Demand is expected to continue to outstrip supply, given demographic trends and homeownership is continuing to decline. Supply is expected to remain constrained, due to land prices, labor issues, strict zoning and long regulatory approval processes.”

At the same time, billions of families around the world remain underserved or unserved by the traditional financial markets, Looney emphasized. As a way to help remedy the situation, under MRI fund’s financial inclusion strategy, the team is investing in private equity and venture capital funds that invest in companies that provide responsible financial products and services to low-income households in underserved markets in the Global South, she said. The companies offering these financial products “are often leveraging technology-enabled distribution channels to reduce costs and serve a more expanded customer base,” Looney said

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