The Kresge Foundation has announced that it will provide $22 million to two established impact fund managers in support of their Opportunity Zone Funds.
Established by the Tax Cuts and Jobs Act of 2017, Opportunity Zones are an economic development tool created with the aim of incentivizing the investment of private capital to address unmet needs in low-income communities; in return for their investments, private investors receive various tax benefits. As written, however, the provision in the tax code provides little in the way of transparency, accountability, or mandatory reporting guidelines. To gain investment from the foundation, which has developed an Opportunity Zones Reporting Framework, Boston-based Arctaris Impact and Fort Lauderdale-based Community Capital Management have agreed to various covenants that go beyond what's included in the legislation, including measures that would increase the number of affordable housing units and prevent displacement; investments in living-wage jobs; and restrictions on non-productive investments.
In return, Kresge has pledged $7 million to CCM and $15 million to Arctaris, along with a guarantee that provides risk mitigation and first-loss protection to their Opportunity Zone Funds. Together, the two fund managers expect to raise and deploy more than $800 million in capital nationally into census tracts designated as Opportunity Zones.
"The level of transparency and reporting Arctaris and CCM have agreed to have set the standard for what investors should ask for before committing dollars to Opportunity Zone Funds," said Kimberlee Cornett, managing director of Kresge's Social Investment Practice, which has $350 million in impact investing capital at its disposal. "These firms are already established leaders in the impact investing space, and we're thrilled they are taking up a leadership position in this new market. Our desire is to signal strong public endorsement of these funds to potential investors who care about getting it right and acting with the best interests of low-income communities in mind."
"The Opportunity Zone Program represents a unique way to bring new investors into the impact investing arena. The tax advantages may draw people in, but they may be pleasantly surprised by the positive impact outcomes that are as rigorous, granular, and transparent as traditional financial reporting," said CCM chief impact strategist David F. Sand. "The covenants we have agreed to might not be required by legislation or regulation, but we believe they should be — we are going above and beyond to demonstrate to the market what this can look like when done right."