Todd Cohen, president and chief investment officer of Community Capital Management considers himself a “social entrepreneur” rather than an “SRI person.” But the fixed-income mutual fund he created in 1999 is something he believes would be of interest to those who do consider themselves SRI people.
The CRA Qualified Investment Fund is a bond fund devoted solely to investing in community development projects. The CRA stands for Community Reinvestment Act, first created by Congress in 1977 to prevent banks from excluding or “redlining” low-income or minority communities from access to credit. Rather it requires banks to help meet the credit needs of the “entire” community in which they operate. In 1997 the ways in which banks could meet the CRA mandate were broadened to include investments in the community as well as loans. Those investments included the types of bonds in which Cohen and his investment partner, Barbara VanScoy, were trading – those that financed community development activities.
Cohen and VanScoy, the senior portfolio manager at Community Capital Management, created the CRA Qualified Investment Fund to help banks meet their CRA responsibilities. Since then it has grown to more than $700 million in assets under management and has invested in affordable housing, economic development and job creation projects across the country. For individual investors the minimum investment requirement is $2,500.
Though a native New Yorker, Cohen graduated from the University of Florida and splits his time between New York and Weston, FL, where Community Capital Management is based. I spoke with him recently about the particulars of his fund.
Q. Bonds aren’t always easy for socially responsible investors to screen, because it’s not always clear where a corporation or a community is spending the money. You say your fund is different.
Cohen. “We started the mutual fund to help banks satisfy their Community Reinvestment Act requirements. We’re using CRA definitions, which describe activities that are eligible for a bank to get CRA approval. Those include affordable health care or affordable housing. So we can define who the beneficiary is for every investment we make. We know before we make an investment how many jobs are being created or if it’s a small business loan that we made. That’s what we’ll report to our banks and investors.”
Q. Explain that a bit more in terms of the investments you make.
Cohen. “We’re not buying Treasury bonds or (government) agency debentures, because we don’t know what is being funded. We have to know where every dollar is being invested for the positive. Treasuries fund a lot of great social programs, but they also have what people might consider negatives like funding the military. We don’t buy corporate bonds. We don’t know and you can’t pick a specific beneficiary of the corporate activities. We have one corporate bond in our portfolio that supports the Salvation Army. That’s the only one we’ve ever purchased.”
Q. What do you buy?
Cohen. “We are buying mortgage-backed securities, but we have them created for us. So all the mortgages are for low-to-moderate income families and we’re able to invest locally.”
Q. They’re created for you?
Cohen. “They’re custom created pools of mortgages and that allows us to invest locally into the communities of our clients. An example might be if a high net-worth retail investor or institutional investor wanted to invest in Boston. Instead of buying a mortgage-backed security that spreads the assets around the country, we’ll pick out 10 mortgages in Boston. We’ll know the borrower’s address, income level, is it a minority census tract, what the median family income is in the area. Then we can report back to the investor that their investment supported those loans.”
Q. The mortgage-backed lending business has been at the center of the credit crisis and the economic downturn. What was the impact on your fund?
Cohen. “Around 1999 or 2000 the adjustable rate market was converting to a teaser rate that would bump up at some point. Because we only finance low to moderate income people, we didn’t think that these people should have variable rate mortgages that bump up at some time. The way the teaser ARMs work didn’t seem to be in their best interest and so as an investor it’s not in our best interest. So we excluded them from our portfolio.”
Would you call yourself an SRI person?
Cohen“I think SRI is a subjective term. I would consider myself a social entrepreneur. The impetus of the company was to help banks meet their community investment needs.
“What we’re trying to accomplish here is very exciting. We can go to corporations and foundations and pension funds and say 'We’re doing the things you’re looking to do for corporate responsibility or a mission-based investment. If we’re not beating your other fixed income managers, don’t hire us. But if we are, you should consider us.’”
