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).

SocialFunds.com -- 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 approaches.

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.

SF: What 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.

SF: 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 these?

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.

We've engaged 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.

Part Two:
Community Investment Pays: More Conversation with F.B. Heron's Luther Ragin