Impact Investments


Several years ago, I first remarked that the most compelling impact investments, very often, are "made, not found." My observation drew from the Foundation's three decades of experience as a hands-on impact investor. Throughout, we've taken a catalytic approach, prioritizing impact and tailoring our capital so that it can effectively seed, develop, and scale organizations focused on the world's most pressing needs.

Hearing my phrase quoted at a recent conference prompted me to consider its broader meaning and relevance for today's impact investing field. Today, there is a sense of breathless excitement about the work and the entrance of mainstream investment firms and asset managers into the arena. No longer an idealistic niche, impact investing is becoming a dynamic, diverse market, brimming with optimism and confidence.

This is encouraging but sobering too. Increasingly, impact investing proponents proclaim that the market can "do it all," that we can finance significant impact without giving up anything in terms of risk or financial return. But this rosy view has a blind spot. It overlooks the fact that catalytic capital—sometimes in concert with public subsidies and grants—is often needed to make high-impact transactions suitable and attractive for a broader range of investors.

Catalytic capital is that essential "made, not found" piece of the puzzle. It is patient, flexible, risk-tolerant financing. Sometimes it accepts lower returns to accommodate the economics of high-impact organizations that are profitable but not profit-maximizing, whether due to an early stage of business development, tough markets, or a focus on impoverished populations.


MacArthur's use of catalytic capital takes two main forms. First, it may anchor a "blended pool," mitigating risk or providing a lower-cost layer of capital that combines with other funds to produce an overall financing package that works well for a high-impact intermediary or enterprise and allows diverse investors to engage.

Second, catalytic capital may play a priming role, giving an unproven organization or market the chance to build financial capacity and proof points so that, over time, it becomes sufficiently profitable, less risky, and better able to attract additional investment on its own.

At MacArthur, we have seen this "but-for" additionality of catalytic capital prove its worth many times over. Thirty years ago, we supported pioneers in microcredit and bolstered the once-fledgling field of U.S. Community Development Financial Institutions. Decades later, investments we made helped pave the way for others. Our early bets helped build strong, resilient enterprises like ACCION International and Self-Help. These are mission-driven financial intermediaries that have grown and flourished, marshaling billions of dollars for the benefit of low-wealth, underserved people across the US and around the world through loans, investments and financial services.

In 2000, we chose a fresh focus for our catalytic mode of impact investing: preserving and improving the nation's vital supply of affordable rental housing. Over a period of roughly 15 years, we invested more than $150 million through the Window of Opportunity national initiative.

To advance this initiative, we used our catalytic capital in two ways. First, we made loans and guarantees designed to de-risk two dozen blended funds, many of which combined public and private investments. Second, we provided capital directly to 22 leading nonprofit affordable housing organizations, building and accelerating their capacity to transform communities, improve residents' lives, and drive positive impact.

All told, we estimate that these funds, intermediaries, and enterprises financed or directly preserved more than 150,000 units of affordable housing, leveraging our investments to attract approximately $9 billion in permanent capital.

For MacArthur, and for the whole marketplace, there are powerful lessons in this experience and they will be our guide going forward.

Today, these loans and investments are beginning to come due, repaying on schedule. Despite the high-risk nature of our financial commitments, losses have been minimal.

Even more important, the effects of our investments will live on long after the last loan is repaid. This is the hidden leverage of catalytic capital: intermediaries and enterprises that we supported are continuing their work, growing stronger and more capable. Their resilience is the lasting legacy for catalytic impact investors, as vital to the impact story as the number of housing units, jobs and businesses created. The work of these organizations is still difficult, but they have models for success. They can effectively absorb and deploy capital, wield their proven credibility, tap powerful networks of relationships, and tackle challenges that once were insurmountable.

For MacArthur, and for the whole marketplace, there are powerful lessons in this experience and they will be our guide going forward.

First, we will continue to make catalytic capital the centerpiece of our impact investing.

Second, we want to do all we can to encourage and help others to make catalytic capital a key part of their impact investing practice too.

Third and finally, we intend to help improve the aggregation and delivery of catalytic capital, to make it faster, easier and better for all through new forms of collaboration and intermediation.

Fortunately, we are not alone in this. There are many public and private organizations working to more effectively put private capital to use for public good. Increasingly, we see that all investments have impact (positive, negative, mixed). But this does not mean all impact is alike.

Based on our experience, we are certain that today's impact investment market cannot reach its full potential by focusing on commercial forms of investment capital alone. Catalytic capital must be part of the mix. By cultivating innovation, scale and impact, it can be a powerful force that improves the lives of millions of people and protects the planet for generations to come.


Impact Investments