Episode 04: The Calvert Community Investment Note
LISTEN TO THE FULL EPISODE
Harvesting cocoa beans. One of Calvert’s Community Investment Note’s holdings supports cocoa producers in Ecuador.
Anna Mabrey from Calvert Impact Capital
Calvert Impact Capital’s website
Calvert's Community Investment Note
CNBC article [about the Forest Resilience Bond]
Lorenzo Sanchez from Rowling & Associates
InStrategy by Rowling & Associates
Linda Rogers: [00:00:00] My name is Linda Rogers, and this is Investing Forward.
Linda Rogers: [00:00:18] Today, we're going to talk about an impact investment note that you can purchase for as little as $20. When you buy this note, you will earn interest, a different amount of interest depending on the maturity you choose, much like a CD, but you will be financing over 100 different high impact projects, funds and organizations that focus on affordable housing, community development and green bonds, to name a few. I was fortunate enough to have met Anna Mabrey from Calvert Impact Capital, the organization that issues the note, at the United Nations headquarters in New York City at a conference. There were no tables available during our very short lunch break, so I had a brief, awkward moment that reminded me of high school before I saw a seat and asked Anna if I could sit at her table. I'm so glad that I did because I had heard about Calvert's Community Investment Note for a while, but had some questions. So I proceeded to pummel her with questions all during lunch, which she graciously answered and we have stayed in touch since. After the interview with Anna, stay tuned for my conversation with Lorenzo Sanchez. Lorenzo's a fellow financial adviser at Rowling & Associates, a firm in San Diego, where my firm Planning Within Reach is based. Lorenzo and I have known each other for a while, and his firm fairly recently transitioned to an all-ESG portfolio for their clients. So we talk a little bit about that transition and I did gather his feedback on the interview with Anna. First up - Anna Mabrey from Calvert Impact Capital.
Anna Mabrey from Calvert Impact Capital
Anna Mabrey: [00:01:55] So my name is Anna Mabrey and I thought I'd give you a little bit of introduction about how I came to impact investing first. So my first career was in African archaeology. My last dig was in the Sudan working for the British Museum, which was a life highlight for sure. And then I made a hard left turn from there into an investment bank working with hedge funds and mutual funds. I've been volunteering for different causes since I was a teenager, so I wanted to combine all of this experience into one road going forward and that's how I found Calvert Impact Capital and impact investing.
Linda Rogers: [00:02:33] Well, that is way more interesting than my first job before I became a financial planner, where I was in the financial software industry doing coding. So very cool. Why don't you tell us a little bit about Calvert.
Anna Mabrey: [00:02:48] So Calvert Impact Capital is a twenty five year old firm built with purpose to lend capital to mission driven intermediaries with positive, measurable social and environmental impact. And another part of our mission is to democratize impact investing and to help grow the space. So I work with growing our product, the Community Investment Note, but I also work with different types of investors and advisors to help them build their practice. So we have two sides at Calvert. We have making the impact investments and raising the investor capital. So I work with a lot of financial advisors and family offices to pool capital through a fixed rate, uncorrelated, CD-like product, which we call the Community Investment Note. And our investment officers take that capital and make the investments into our partners, which right now there are about 115. So and we have our product is like a CD, as I mentioned, and it is a low minimum and no fees. So it's pretty simple.
Linda Rogers: [00:03:52] And since you mentioned low minimum, I mean, what is the minimum that an investor needs to purchase this note?
Anna Mabrey: [00:03:58] If you invest online, it's $20.If you invested through a brokerage, it's $1,000.
Linda Rogers: [00:04:03] And you said the note was a fixed rate, a CD-like product, and that it is uncorrelated. Correlation, for those that are not familiar, is a statistical measurement that determines the degree that let's just say two holdings or funds in your portfolio move in relation to each other. Positive correlation means that they move together. When one fund goes up, the other fund goes up. When one fund goes down, the other fund goes down. Negative correlation means they move in opposite directions. When one fund goes up, the other fund goes down. When you say the Calvert Community Investment Note is uncorrelated, meaning its performance has no relation to the broader market, why is that?
Anna Mabrey: [00:04:44] So we make loans to partners. So that's a fixed term and rate. We aren't making equity investments. We're not invested in any market. It's not what the Fed does or, you know, with Treasuries, we're not. Our value isn't based on another vehicle or market value. So we make loans. We have fixed rates and terms for our borrowers and we pay our investors, like a CD, fixed rates and terms.
Linda Rogers: [00:05:11] Ok, and how are you seeing people implementing the note in their portfolio?
Anna Mabrey: [00:05:16] So I've seen it, I guess kind of three main ways. Investors or advisors will use it like a traditional fixed income product. Sometimes they ladder maturities. Some have it as an alternative investment in their portfolio. Maybe they're tickling the impact, investing itch or ticking a box and some people use it as a cash alternative.
Linda Rogers: [00:05:40] When investors purchase the note on the website, I notice that they have the option to specify a target area such as education, health, renewable energy or sustainable agriculture. There's even something called Benefit Chicago. How does that work if you choose to specify where you want your investment dollars to go?
Anna Mabrey: [00:06:00] The note right now we have about $420 million dollars that are already invested with impact partners so when new money comes in it goes to new investments. So we're pooling capital and we're also pooling targeting. So one shift we've seen over the last few years is a shift away from micro-finance and community development banks into gender equity and sustainable agriculture and renewable energy. So that's a direct effect of, well, both opportunity and targeting from our investor base.
Linda Rogers: [00:06:40] If you do decide to target your investment, is that changing the risk return profile of your investment.
Anna Mabrey: [00:06:46] Nope, so you can come for the health and education, but you can stay for the gender equity and sustainable food systems. You get the whole, uncorrelated, diversified, buy.
Linda Rogers: [00:06:58] Ok, and I did ask you to just kind of prepare going into a few of the fund's holdings in detail. I think that would really help just to give listeners an idea of what is in the portfolio and what kind of impact it's having. So are you open to doing that?
Anna Mabrey: [00:07:14] Yeah, I wanted to tell you about three of them. So eco.business Fund, Central City Concern and Forest Resilience Bond are I mean, they're all incredible. And we don't have enough time because I can talk about our 115 for days.
eco.business Fund
So eco.business Fund, super high level, their mission is to conserve biodiversity, promote business and sustainable consumption and make a financial return. Their focus area is Latin America, the Caribbean and sub-Saharan Africa. So they provide financing and technical assistance to their borrowers. For example, one of their partners is Banco Pichincha in Ecuador, which they lend to a lot of farmers. So Banco Pichincha lends to and supports responsible cocoa producers, for example, which we all know is a major issue and it's a major part of the Ecuadorian economy. So they work with their borrowers on sustainable crop management and environmentally friendly agricultural practices, which is critical for the sustainability of the farmer and the rainforest and the economy of Ecuador. So, you know, and we can look at examples in across the Caribbean, in sub-Saharan Africa, where there are a lot of unsustainable practices. So when you tie in money with the sustainability, it has a bigger stickiness effect, I guess.
Central City Concern
Another cool partner we have is Central City Concern, which is based in Portland, Oregon. It was actually our first impact investment and they have grown to over 1,000 employees, and I don't know how many facilities, which means they've pretty much outgrown us now, but that's really our goal. We are serving underserved communities that don't have traditional access to financing. So we're helping them grow to the point that they can. The Central City Concern focuses on helping people suffering from addiction and homelessness, and they provide a place to live, job skills training, sometimes jobs. They provide income, they provide rehabilitation and medical support and family services help overcome a lot of these negative cycles which are tied together.
Forest Resilience Bond
Forest Resilience Bond is the third one that I'll mention, which is super cool and innovative. It's actually a bridge loan developed by Blue Forest Conservation and us to raise money upfront to fund forest restoration in California. Their work is specifically designed to reduce the risk of wildfire and protect water sources and manage or try to eradicate invasive species. So we've seen like especially I mean, it seems like every year it gets worse. But with the Camp and Paradise fires, that's tied up all the state and government money. Like they have not been able to publicly fund prevention for the next fire season. So this is a really cool public - private initiative, the Forest Resilience Bond. They do things like tree thinning, meadow restoration, prescribed burning, like all the kind of things we've gotten familiar with. A lot of people have seen the story about this vehicle on CNBC. And there's an interview with our CEO. This Forest Resilience Bond was oversubscribed so quickly and the need is so great. I think that they're developing another offering. But right now, the only access point is the Calvert Impact Community Investment Note.
Linda Rogers: [00:10:37] The Forest Resilience Bond piqued my interest. Being based in Southern California, I own a home in San Diego on a canyon, and I've seen the destruction from wildfires firsthand. I asked Anna about the details of how investors are paid back with that bond. She said each bond is structured differently so you really have to look at the individual investment. So I did that and was able to find more info. With the Forest Resilience Bond, investors are paid back over five years with 4% interest by those who benefit from the prevention work that is being done. The CNBC article [about the Forest Resilience Bond] Anna mentioned will be linked on the Investing Forward Podcast website, but it states that the payments will come from the Yuba Water Agency, whose reservoirs receive water from the forest. Yuba has been spending millions of dollars cleaning its reservoirs of debris, and they fully anticipate the prevention work being done will save them money over the long term because less debris is going to be running into the reservoirs. Yuba used to rely on money from the US Forest Service, but as Anna said that money is no longer available. Given the active fire seasons that we've been having, everything has been going to fighting fires and nothing is left for prevention.
Now, Anna shifting gears to risk, tell me about how you build and manage the portfolio to protect against losses. There are always companies or holdings in a portfolio that can suffer losses. That is why diversification is so important. What kinds of safeguards do you have in place to ensure that investors that buy the Community Investment Note get paid?
Anna Mabrey: [00:12:22] So we have repaid investors 100% of principal and interest over 25 years. Yes, we have lost a dollar, but an investor has never lost a dollar, so. I guess I'll kind of start from the top, like at the beginning of the process, we are, well by predominantly investing in intermediaries we are really underwriting the underwriters. We look for sound corporate governance, responsible lending practices, ethical behavior, and underlying businesses that are basic services, which are very resilient, as we see in economic downturns. We have risk officers that do scoring. We have investment officers doing scoring and due diligence. We have staff and board review committees. That's all kind of at the beginning. Like during the life of the loan, we have quarterly monitoring or more often as the case may be, such as now. And then we are we have regulators which require a certain level of risk mitigation to allow us to sell a retail fixed income security. And so another layer of this is we have $120 million dollars of subordinated investments. That's foundations, that's individuals, that's big financial institutions, like Wells Fargo. So we have subordinated investments, net assets and guarantees, which is a $120M dollar cushion. And then you mentioned on the losing - have we ever lost a dollar on the investment side? We have raised and deployed $2.5B over 25 years, we've lost $6M. So less than 1% on the money outside, which was easily absorbed by our subordinated investments, net assets and guarantees.
Linda Rogers: [00:14:10] Great, and just go ahead and state your website.
Anna Mabrey: [00:14:13] CalvertImpactCapital.org.
Linda Rogers: [00:14:16] And if people want to learn more, is that the best place to go?
Anna Mabrey: [00:14:20] So I would say if people are interested in more about who we invest in, our impact partners, or our methodology, or our mission, anything about us, our website is very extensive. We have a 2019 Impact Report, which is how we talk about and measure what we do. We want to be as transparent as possible so that other people copy us because there is a way to make money and do good. We have a prospectus which is more exciting than it sounds. We have quarterly updates. We have blog posts. We have lots of ways to interact with us. My phone number and email is on the website. There's an info@calvertimpactcapital.org. You can just email that - one of my colleagues would answer. We are on webinars like there's so many ways to interact. So I would just say Google us, go to our website. We have events on there. And you can reach out to me.
Linda Rogers: [00:15:16] Awesome, thanks so much for doing this. OK, so next up, we've got Lorenzo Sanchez from Rowling & Associates.
Lorenzo Sanchez from Rowling & Associates
Lorenzo Sanchez: [00:15:24] So my name is Lorenzo Sanchez. I am a Certified Financial Planning professional and the Director of Wealth Management at Rowling Associates. For me, this means I oversee our financial planning team and lead our investment committee as well. I started Rowling in 2013 as a financial planner and before that I worked as a credit analyst in Mexico at the Latin American headquarters of a Fortune 500 company. And before that I was studying my B.A. in finance at the University of Notre Dame.
Linda Rogers: [00:15:59] Nice. OK, well, tell us a little bit about Rowling & Associates.
Lorenzo Sanchez: [00:16:03] So Rowling & Associates is a fee-only wealth management, financial planning and tax services firm. And we're located in sunny San Diego, California. When I joined in 2013, our team was eight people, I believe, and we've now grown to 15. And that includes three CPAs and three Certified Financial Planning professionals like myself. Right now we manage close to $500 million in assets and our main goal as a firm is for our clients to be able to live their lives without having to worry about their finances.
Linda Rogers: [00:16:46] And you also speak Spanish. So for clients that prefer that.
Lorenzo Sanchez: [00:16:49] Yeah, so if you look at our website, you'll notice that our firm is very different from the rest of the industry. Our main page picture is a picture of our team jumping on the beach. It's not your typical sailing boat or a picture of a 60'ish year old couple sitting on the beach in retirement smiling. Right. We've also built a very diverse team, which we see as a huge advantage. And it's lots of fun in our office. By diverse, I mean, our team is 60 percent women. We have team members that are part of the LGBTQ community. And then a few of us are from Europe, two of us from Mexico, and we have an employee from India. And our age range for our employees ranges from mid twenties to mid 70s. Yeah. So having I'd say having a diverse team is really important for us because our firm uses what we call a team approach with our clients. We think that R&A is one team. All of our members actively engage in our client's success through cooperation and sharing ideas and information, most importantly, their opinions, which are all very different. And as a firm, we don't have advisors with individual clients. All our clients are clients of the firm, and that allows them to benefit from all the firm's resources.
Linda Rogers: [00:18:22] Really? So clients don't have a primary advisor? That's the first time I've heard of that.
Lorenzo Sanchez: [00:18:28] Yeah. So we've and this has been Sheryl's methodology for a long time now. And now that we have people that have been at our firm for a while, it seems less intimidating as an employee. But before I mean, when we when I started, it was from day one we were in client meetings and leading meetings here and there and emailing directly back and forth with clients. So it was a really good way to speed up the learning curve.
Linda Rogers: [00:18:56] And when Lorenzo mentions Sheryl, he made Sheryl Rowling. So that is the founder of Rowling & Associates and really having also been in San Diego when I started my business, she's really been a role model to me. She was a woman that started a financial planning practice with tax preparation, and investment management. She's a thought leader in the space. She writes for Morningstar.com. Just really an incredible person and obviously, she's built a great firm. So just in terms of the Spanish, I'll just say I do speak a little bit of Spanish and I try and speak it with my kids at home. And I haven't done it in a business setting because I cannot say how "to save" in Spanish. Can you say the Spanish verb "to save" for me?
Lorenzo Sanchez: [00:19:42] Ahorrar.
Linda Rogers: [00:19:43] That is very difficult for a non-native Spanish speaker, which is why I send all my anyone who requests a Spanish financial planner I send to you guys.
Lorenzo Sanchez: [00:19:53] We're actually translating our whole website to Spanish too right now because we're, I mean, there's three of us that speak Spanish. There's two of us that are or two people at our firm that are conversational at least, and one of our employees taking class Spanish classes.
Linda Rogers: [00:20:18] Great. And I mean, what do you do for fun?
Lorenzo Sanchez: [00:20:21] So I love going to Padres games, which is something that I can't do right now, unfortunately. But, you know, typical San Diego things - going to the beach, just being outside as long as I can throughout the year is fun enough.
Linda Rogers: [00:20:37] And who is your typical client?
Lorenzo Sanchez: [00:20:40] So I'll preface this by saying that our firm has no minimums and we're really happy to help anyone. That said, because we do have an in-house tax team, the type of client that benefits most from our firm is someone that has both a complex financial and tax planning need. So, for example, a couple with a rental property, maybe one of them has a stock option plan and the other person owns a business. So this type of household really benefits from the synergies that occur between our financial planners and our CPAs. Our clients really like how nice it is to have their quote unquote investment person and their quote unquote tax person and their financial planning person under the same roof. That said, we do work with people that are starting their financial planning journey as well. And we have clients that are, you know, in their mid and late 20s right out of school, maybe starting their first job first 401k, and then we also have a lot of retirees that we're helping with their withdrawal stage.
Linda Rogers: [00:21:53] Yep. OK, yeah, we have kind of similar firms in that respect where I also offer the financial planning, tax prep and investment management. And like you, I don't just do the tax prep. It would be I would do the tax prep for people that are also getting financial planning or investment management. OK, so shifting gears, are you doing impact investing or ESG integration right now in your portfolios?
Lorenzo Sanchez: [00:22:19] Yes. So we are actively doing ESG integration right now for our client portfolios. So I'll back up and say our firm uses 100% mutual funds to implement all of our investment strategies. About four years ago, we started looking into mutual funds that were integrating ESG information into their investment process. We hold between 12 and 15 asset classes in all of our clients portfolio, and at that point we were able to find maybe three or four funds that we deemed appropriate for our clients. So back then, we all we did was say, hey, clients, this option exists now, and if it's something that you're interested in, we can make the switch over to these new funds and maybe five or so of them switched over. Over time, we were able to add more and more funds as far as the ESG focus funds matured and crossed our minimum five years since inception. And also we did a lot of education ourselves. We learned more and more about the ESG mutual fund universe, and we're able to find more and more options. So as of last year, we recommended all of our clients make the switch to our now complete ESG mutual fund buy list. Last year, we still had two mutual fund buy lists, an ESG one and a normal one, which allowed clients who weren't comfortable or just didn't want to make the switch yet to stay put. We really didn't have that many clients that didn't want to change, and most of the ones that showed initial push back have now made the jump thanks to constant education like webinars and just emails that we would send out on the topic and mostly their trust on our judgment and our process. When we finish our investment review this year at the end of September we'll only have one mutual fund buy list. So we will be 100% ESG focused at that point.
Linda Rogers: [00:24:39] And I know your firm started out doing traditional investing. So just tell me about what you said four years ago you started to look at ESG integration. What what was that push?
Lorenzo Sanchez: [00:24:49] So we go through and I mentioned our investment review here finishing in September, but every year we go through a ‘start from scratch project’ where we say, let's pretend like we don't have investment allocations. Let's pretend like we don't have preferred funds. What is the best portfolio that we can put together for our clients. A big part of the process is our investment committee getting together to brainstorm on new ideas. And this happens in a meeting and it also happens throughout the year as we see things come from different mutual fund companies, from Morningstar, from other thought leaders. And we'll say, let's keep this on our radar and see once we get together, if it makes sense. At the beginning, ESG interested us because our client base is very charitable and we thought this would align well with them. This that's funny now, because when we made the hard switch last year, we did a lot of webinars and education on how ESG integration is completely separate from charitable work. In other words, charity for us and we learn that to our clients implied giving up some return for the quote unquote, greater good. But our pitch now is that ESG actually provides the same return over the long term, but actually reduces overall portfolio risk. And this concept of same return, less risk is why we recommended that our clients be in all ESG funds.
Linda Rogers: [00:26:33] Well, and you listened to the audio about the Calvert Community Investment Note. What are your thoughts? Is this something that you have looked at?
Lorenzo Sanchez: [00:26:41] So I admit that I had not heard about the Calvert Community Investment Note. I am familiar with Calvert and they're on our list every year to look at. But I think this is one of the things that I enjoy about ESG investing. We're constantly finding new ideas, new experts like this podcast, new mutual fund companies, or in this case, a new investment vehicle that can help us implement our portfolio allocations. I think this is really exciting and it's pushed our investment committee to stay on their toes and really look for new ideas every year.
Linda Rogers: [00:27:18] Did anything else stick out to you in the interview with Anna that you want to talk about?
Lorenzo Sanchez: [00:27:23] I think one of the hardest parts of ESG investing is that people blend it in with socially conscious or with charity, like we said earlier. And that means different things to everyone. I like for this vehicle that investors can pick and choose the sectors that they want to influence, like you said. And her comment about people coming for one sector but staying for the other was interesting because to me, it shows that Calvert has been dynamic and has created enough sectors now to accommodate people's changing views of where help is needed. And then, I mean, as an advisor, the fact that they've repaid 100% of their investors is very impressive to me.
Linda Rogers: [00:28:15] All right. And how can people get in touch with you?
Lorenzo Sanchez: [00:28:18] Anyone can contact me at my Rowling email, which is lorenzo@rowling.com or via LinkedIn. I'm always happy to talk to other advisors that are starting on their path towards ESG or sustainable investing. We really consider ourselves advocates in this space and we've done various presentations at conferences for Morningstar. I think we did one for SSG as well. Our blog is pretty active on the Rowling side. And then we do offer a separate service for advisors that would prefer to use our investment allocations rather than do the research in-house. And we call that our InStrategy product, and that includes our investment allocation. So our target portfolios and our mutual fund picks, as well. It's fully compliant - it's a take it and use it right away type of deal. So it's very convenient for advisors that want to spend more time prospecting or servicing their clients and less time doing investment research.
Linda Rogers: [00:29:35] Ok, thanks for doing this, Lorenzo.
Lorenzo Sanchez: [00:29:37] Thank you.
Linda Rogers: [00:29:38] If you're completely new to impact investing, consider looking into the Calvert Community Investment Note. You can start with as little as $20 to gain access to investments you would otherwise miss out on, such as the Forest Resilience Bond. Read their impact reports to get a flavor for what your money is doing and what it can do when you invest for impact in addition to a return. And I love how Lorenzo shared how his firm goes through the process every year of starting from scratch. It's such a humble approach. New strategies mean more work. So don't assume that your advisor is going to go out of their way to learn about impact investing. You, the investor, needs to ask your advisor about impact investing to learn about how you can make money while having an impact. Check out InvestingForwardPodcast.com to view the contact information for Anna and Lorenzo and for the links mentioned in today's episode. And also to submit your feedback. I love hearing from you. See you next time. My name is Linda Rogers. You were listening to Investing Forward. If you liked what you heard, leave us a rating, subscribe and stay tuned for next time.
Linda Rogers: [00:31:25] Linda Rogers is the owner of Planning Within Reach, a Registered Investment Advisor, Planning Within Reach produces the podcast and makes it available on its website and through other distribution channels. Linda Rogers and any guest on the podcast are providing their own views and opinions and are not necessarily the views and opinions of Planning Within Reach. Nothing on the podcast should be construed as a solicitation or offer or recommendation to buy or sell any security investment. Advisory services are only provided to investors who become planning within reach clients pursuant to a written investment management agreement. Clients of Planning Within Reach may hold positions in securities discussed in this podcast. Past performance is no guarantee of future results. All investments involve risk and may lose money. The Investing Forward Podcast is for informational purposes only and should not be relied on for any investment decisions. Consult with a financial advisor, accountant, attorney, or conduct your own due diligence.