Community Capital Management (CCM) manages the CRA Qualified Investment fund, which is part of Abacus’ ESG Fixed Income portfolio. The fund invests in bonds that are eligible for CRA credits under the Community Reinvestment Act, which mandates lending institutions to dedicate a portion of their loans to otherwise underserved communities. The bonds in the portfolio fund a wide array of community investments, including affordable housing, education, job and enterprise development, and different kinds of infrastructure. These investments also map nicely to the Sustainable Development Goals (SDGs), which are goals and priorities to guide public and private investment in order to “achieve a better and more sustainable future for all” by 2030.
SDGs & CCM Impact Themes
CCM recently published its 2020 impact report, which highlights a number of investments in the portfolio. During the year, CCM launched two new initiatives within the fund to specifically address two critical issues: Covid-19 Relief, which aims to deploy $100m to provide capital to underserved people, neighborhoods, economic recovery programs, and small businesses that have been impacted by the pandemic, and Minority Cares, which will invest $2 billion over 5 years in programs designed to address racial inequities. Here we will share some details of two of those investments.
First out is an investment that is part of the Minority Cares initiative: a Mortgage-Backed Security (MBS) made up of a customized pool of mortgages that are held by low- and moderate-income (LMI) borrowers. This particular pool is made up of 26 different mortgages that were originated in 2020 across 14 states. 18 of the mortgages were made to minority borrowers and 12 were made in minority dominated communities. There are significant disparities in home ownership in the US by race and ethnicity, as displayed in the graph below. According to the 2020 Census, homeownership rates among Black and Hispanic Americans has fluctuated between 40% and 50% for the past 25 years, while over 70% of White Americans are homeowners [1]. This gap is considered a major driver of the overall wealth gaps between White people and racial minorities. According to a survey conducted by the Federal Reserve Bank [2], the median family wealth among White Americans was $188,000 in 2019, compared to just $24,000 among Black families and $36,000 among Hispanics. By specifically targeting mortgages issued to minority borrowers, CCM is allowing investors to provide capital toward addressing not just the gaps in homeownership, but also the racial wealth gap overall. Closing these gaps will benefit not just the specific families that are able to take out a mortgage to purchase or refinance a home, but it should benefit the economy as a whole. Research from McKinsey finds that by closing the racial wealth gap, the US GDP could be 4-6% higher by 2028 [3] by increasing consumption and investment in the economy.
Homeownership Rate by Race
Source: Censes Buraeu, Housing Vacancy Survey (updated 2020)
Footnote: Homeownership Rate – From 1996 to 2002, those answering ‘other’ for race were allocated to one of the 4 race categories: White, Black, American indian, Aleut, or Eskimo (one category), or Asian or Native Hawaiian.
The next investment is part of CCM’s Covid-19 Relief initiative. In 2020, the United Services Automobile Association (USAA) Capital Corporation issued two sets of sustainability bonds to fund investments in affordable housing, clean transportation, renewable energy, and Covid-19 relief. The USAA was originally an insurance company founded in 1922 to offer auto insurance to Army officers, but has since grown to become a diversified financial service group that primarily serves people and families who serve, or have served, in the US armed forces. Proceeds from the bonds are allocated roughly equal between social and environmental initiatives with the intention of supporting both new and existing investments. When it was clear that the pandemic would have a significant economic impact, USAA decided to raise capital to help alleviate financial burdens on USAA members by waiving banking fees, deferring mortgage and loan payments, and by waiving deductibles and co-payments for Medicare supplement clients for testing or treatment of illnesses related to the Covid-19 virus.
So far, CCM has deployed $315 million of the $2 billion pledged to the Minority Cares initiative. Since this is a 5-year program that was launched in May 2020, the program is on track. Covid-19 Relief doesn’t have a set timeline but has so far deployed $72 million out of the total $100 million goal. Investors in Abacus’ ESG Fixed Income portfolio and the CRA Qualified Investment fund are all contributing to funding these bonds and many more, all of which are included in the portfolio because of the positive impact they are having on people and the planet.
Disclosure: Abacus is an SEC Registered Investment Adviser. Information presented is for educational purposes only and should not be construed as investment advice as the information may not be suitable for all investors. The information does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Abacus does not provide legal or tax advice. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
[1] https://usafacts.org/articles/homeownership-rates-by-race/
