This year’s economic and social turmoil has accelerated the growth of so-called “impact investing” — a rising emphasis on social and community impact, alongside ROI, when making investment decisions. As a growing form of impact investing, Opportunity Zone funds offer a great way for investors to achieve their goals.

With low-income communities disproportionately hurt by the spread of COVID-19, we firmly believe that impact investing will be a key driver of economic stimulus, job creation and equitable recovery in the post-stimulus period. And by putting investment capital to good use for communities, OZ funds with the right priorities and messaging may capture an out-sized share of impact investment.

On Wed., Sept. 9th, JTC Americas, Formerly NES Financial, hosted a free webinar, Insider Insights Series: Opportunity Zones and Impact Investing. The event was moderated by Reid Thomas, Chief Revenue Officer and Managing Director of JTC Americas

We spoke with our guest expert panelists about impact investment, especially during COVID. Learn what they had to say below.

How important is impact investing versus returns to investors?

Robert H. Hutchins of ELLAVOZ: We equally weigh and measure positive social impact and significant financial returns for our investors. Both need to meet our shared value investment strategy, so they don’t have to give up one for the other. Our investors are about 50/50 in their main driver for investing in our funds are my best guess. We are an affordable housing Social Impact private equity firm. We utilize all the community development tax incentive tools available for non-dilutive capital and, as much as possible, invest through a qualified opportunity fund for all the tax benefits of Internal Revenue Code Section 1400-Z.

DJ Van Keuren of Evergreen Property Partners: For family offices, it comes down to which family member is looking at an investment that has a social impact. The majority of Patriarchs will look for a higher rate of return on any investments and the social impact secondarily. The younger generation, however, focuses on the impact that investment would have first and be willing to accept the lower rate of return. I see this continuing to be the trend in the future. Real social impact investments by family offices won’t happen until the younger generation has control over the family investments.

Kunal Merchant of CalOZ: It depends on the investor. The OZ incentive puts relatively little restrictions on the types of investors who can utilize the tool, so there is a pretty broad spectrum of actors and motivations in the OZ investment world. Some folks hail from the “impact investor” community – ostensibly mission-drive investors who have a track record prior to the OZ tool of showing willingness to accept lower financial returns in pursuit of significant social impact. Other OZ investors come from more traditional investment background, which places primary, if not exclusive, emphasis on maximizing financial return. Many are bringing the same mentality to the OZ market, motivated primarily by the tax benefits of OZ’s with little to no sincere interest in impact. However, I am encouraged by other “traditional” investor groups, like RevOZ Capital in Southern California for instance, who are genuinely working to integrate a greater social impact emphasis into business model for OZ investments. Ideally all IZ investors would integrate real social and economic impact into their investment structures, but the original OZ legislation and subsequent Trump Administration guidance hardly mandates this. And, with no OZ fund reporting requirements, we don’t really have any evidence that OZ investments are genuinely achieving positive social impact at scale.

Have impact funding motivations changed since COVID?

Robert H. Hutchins: We closed our single asset Funds I and II before the Covid-19 pandemic hit hard. Funds III and IV, which are multi asset, are launching after Labor Day and we will see how the investor motivation changes. We have recently been approached by some influential people about our social impact community development business model. We are not a transactional OZ fund. We have a 10-year plan for our targeted neighborhoods to build real value for our investors and communities. I think Covid-19 accelerated awareness of the both the need and opportunity for allocating a portion of capital in social impact investments. We call this the 5% Pledge.

DJ Van Keuren: There has been no change for family offices into impact investments since COVID-19. However, I firmly believe that the increase in opportunity zone investments, which does have a social impact, will increase going into 2021. This is because many of the stock portfolios that family offices have had sold positions based upon the opportunities in the mark, which in turn created capital gains for families. To minimize those gains, families will look to invest in opportunity zones that do have a social impact. The other thing that could create more significant investments into opportunity zones will be if the 1031 exchange option becomes excluded under a new administration. If this happens, then this also could drive additional investments into opportunity zones.

Kunal Merchant: It’s really a mixed bag at this point. On one hand, the added uncertainty of COVID-19 likely had a chilling effect on investment – particularly in a category that expects investors to make big, long-term bets in geographies that, for the most part, aren’t perceived as highly capitalized, highly stable markets. Anecdotally, we’ve heard of several OZ projects (mostly in real estate) that have pushed back timelines, both for funding and for construction, as a result of COVID-19 and the ensuing economic downturn. But at the same time, there still was a pretty significant wave of capital transferred into OZ funds through 2019 and early 2020 that is making its way into OZ projects – especially when project sponsors see arbitrage opportunities in this phase of the business cycle – e.g. lower costs of land, labor, materials, etc. I think interest in the program is robust enough that, whenever the economy starts to rebound, you’ll see a proportionate, if not disproportionate surge of pent-up OZ capital enter the market from funds eager to put their money to work and catch as much recovery upside as possible. In my most optimistic moments, I’m also hopeful that COVID-19 may motivate investors to explore project types that will build greater resilience in OZ communities – health care facilities, broadband infrastructure, job training and workforce programs, small business accelerators, affordable and attainable housing, and so on. But, like everyone else right now, I’m simply guessing as we navigate these strange and unprecedented times.

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Register today to watch “Insider Insights Series: Opportunity Zones and Impact Investing” webinar or visit our Impact Funds Resource Hub for more information.