RONALD A. HOMER
‘An investment test’
The Community Investment Fund, the main investment vehicle at Boston-based Access Capital Strategies, was created as a way for banks to boost their Community Reinvestment Act scores.
Ten years and more than 120 bank investors later, the fund has been opened to individuals who want to put their money toward the same sort of socially responsible causes.
Access Capital Chief Executive Officer Ronald A. Homer, a former bank president and past member of the consumer advisory board of the Federal Reserve Bank, said he knew banks could use another way to document community investment as a way to move their Satisfactory rating to Outstanding.
If it had good returns, he thought, then all the better.
“This was an investment test,” he said. “We [he and business partner David F. Sand] said, ‘What if we could create an investment package that would meet CRA goals?'”
Today, anyone with $25,000 and a desire to put their money toward affordable housing and community development – the $500 million fund’s focus – can invest, since the Securities and Exchange Commission allowed the fund to be opened to retail customers in January.
“We’re in business – we want more money for the fund, and more people want to invest in social funds these days,” said Homer, explaining why he sought the expansion.
Homer, who serves on Banker & Tradesman’s advisory board, and Sand, Access Capital’s president and chief investment officer, spent the better part of last year filing paperwork with the SEC, the federal agency that regulates stocks and mutual funds, to get permission to open investments to the public.
“It changed the way we did business,” Homer said, because the SEC places more stringent disclosure requirements on funds offered to the public.
But with those regulations came new possibilities for growth. Homer said the Community Investment Fund is logically poised to get bigger.
Its mission to provide financing for low- and moderate-income homebuyers, affordable rental housing development, U.S. Small Business Administration loans and economic development projects is supported by investments in mortgages taken out by low- and moderate-income borrowers.
The fund deliberately invests in small instead of large loans, Homer said, because those loans are generally bundled into packages of $1 million. An investor counting on returns from many mortgages in the package carries less risk that every single borrower will refinance, if a lower interest rate comes around, than if the loans were larger.
CIF also invests only in loans backed by government-sponsored entities – rated at least AAA by a bond rating service – and prime-rate loans, in an attempt to minimize risk.
‘The Wrong Door’
Homer said between 30 percent and 40 percent of people who hold subprime mortgages likely had credit that was good enough to qualify for a prime rate, but “just walked in the wrong [lender’s] door.”
Access Capital pays lenders a premium to purchase and securitize their mortgages, he noted.
Investors who put more than $500,000 in CIF are allowed to target their money toward investments in a particular state. For that reason, Massachusetts’ own Pension Reserves Investment Management fund – the state employees’ retirement fund – is CIF’s largest investor. PRIM invested $25 million in the fund in 2004 and an additional $50 million the following year.
State Treasurer Timothy Cahill said he likes the fact that state employees’ pension investments stay in-state.
“The beneficiaries of this investment strategy are the people of Massachusetts, who need it the most,” he said.
Today, PRIM has $130 million in the fund. CIF also has large investments in other states, including California and Texas.
An out-of-state local pension fund also reportedly plans to invest millions with Access Capital to create a separate fund to be backed by mortgages made in its region.
While an official announcement has yet to be made, Homer said several New York City employee-pension groups plan to invest $100 million in a fund that would make targeted investments in that area.
Massachusetts is one of just a few non-bank investors in CIF today. Others include Blue Cross Blue Shield, the Philadelphia Foundation and the Vermont Community Foundation.
Citizens Bank, Eastern Bank, Boston Private Bank & Trust Co., Sovereign Bank and Bank of America are among the major bank investors.
CIF’s returns have outpaced indexes of funds with comparable investments in recent years. Since 2004, for example, it’s done better than the Lehman Aggregate Bond Index, which includes government- and mortgage-backed securities.
Last year, CIF returned 7.4 percent to its investors, compared to 6.6 percent for the Lehman Index.
In an article prepared by Merrill Lynch & Co., which managed CIF from 2002 until last year, Homer said the fund is an all-around winner: for investors, who can meet the regulatory requirements or social interests of individuals who invest in their funds; homebuyers, who are more likely to get loans since there’s someone who wants to buy them; and communities, which benefit when CIF investors put their money in the fund.
CIF has invested in economically disadvantaged communities in 38 states. In 2005, it loaned $9.4 million to a community health center in Holyoke – one of Massachusetts’ poorest towns – and has made a continuing commitment to help it expand services.
Homer and Sand managed CIF from its inception until 2002. Merrill Lynch was manager for the next four years, but when it merged with another company, Access Capital switched to Voyageur Asset Management last fall.
