Ellavoz’s Robert Hutchins discusses Opportunity Zones, impact investing, and why home ownership is the key to generational wealth.
The JTC Americas Impact Medallion Program recognizes impact fund managers and industry stakeholders who embrace best practices in security, transparency, and compliance. In this series, we’ll showcase Impact Medallion recipients and how they’re leading the way on Impact & ESG.
Private Equity managers of Impact funds raise and deploy capital with the goal of positively affecting underserved communities, but for Ellavoz Impact Capital, the work doesn’t end there. The company’s Neighborhood Homes Fund partners with non-profit organizations to develop single-family residential real estate at affordable prices, and its Impact Angel Network brings together high net worth individuals, business entities, and family offices who pledge to allocate 5% of their assets over time to social impact investments.
Ellavoz is also active in the Opportunity Zones space, with multiple Opportunity Funds that employ the company’s Shared Values investment strategy, which is built on the idea that “every investor should allocate social purpose into their investment portfolio, because when you invest where need is greatest, there is minimized risk and opportunity for true social impact.”
We spoke with Robert Hutchins, CEO of Ellavoz Impact Capital and President & Managing Director of Ellavoz Shared Values Opportunity Fund, about his company’s values and the promise of Opportunity Zones. He also explains why when fund managers have the right perspective, the “impact vs. returns” argument can answer itself.
Your mission statement underscores the importance of “Place-based value creation.” Can you tell us how you arrived at this mission and why you think it’s crucial to the Impact space?
Hutchins: The path to generational wealth starts with home ownership. African American homeownership is at about 44%, while white homeownership is at about 72%. Too many minority neighborhoods are 100% landlord/tenant based, which results in higher crime, less healthy housing choices, and insecure lifestyles. Neighborhoods with 20% or more owner-occupied housing have 2/3 less crime. We need to invest in family homeownership.
Another thing that sets Ellavoz apart is its direct impact investment asset class. Does this structure make it easier to explain to investors how their capital can be used to do good while generating returns?
Hutchins: Absolutely. Our funds are designed for UHNW clients and their family offices, which prefer not to invest in high-fee, carried interest, and multiple waterfall profit-sharing agreements. We invest alongside our client-investors on the same terms. We are advisors first and our investors are our clients. Transparency is everything.
I think our readers would be interested in “Shared values impact investing,” and specifically your commitment to Goal #11 of the United Nations Sustainable Development Goals.
Hutchins: Housing injustice is our mission, and United Nations Sustainable Development Goal #11 is “sustainable communities” with the outcome target of “safe and affordable housing.”
We studied the work of Professor Michael Porter of Harvard, who developed the “shared values” investment theory, which says that capital should be allocated where society needs it most and that investors should receive fair market rate returns for directing capital to societal-benefiting investments. We partner with not-for-profit partners in the communities where we invest to improve services for residents as a value-add and risk mitigation for our investments.
Tell us a little bit about the Impact Angel Network, how you got the idea for the initiative, and how investors have responded to this idea.
Hutchins: Our Ellavoz Impact Angel Network is active in ESG impact investing beyond sustainable communities. These are savvy investors who want their children and future generations to have a healthier and fairer America. This is not philanthropy; this is new capitalism solving longstanding problems like structural injustices in home ownership.
We just partnered with the NJ Institute of Technology to provide the lead grant of $15,000 annually to the winner of their student entrepreneur contest. In addition, the top ESG technology students will pitch their ideas to our angels for investment. We call it “Boomers funding Zoomers.” This will be exciting and fun, as well as really impactful because Generation Z is the most entrepreneurial of all.
Ellavoz has operated several Opportunity Funds. What does your typical OZ investor look like? Do you see a promising future for the initiative?
Hutchins: We have a number of Opportunity Zones funds under management, and our investors are private individuals, so our deals fit their goals and needs. The first priority for those investors is capital gains tax savings with strong low-risk investments that can be a long-term asset hold, until 2045, to maximize the excludable gain from taxation. The fact that we combine solid investments with our impact investing strategies is secondary, but still a factor that differentiates Ellavoz from most of the OZ funds in the marketplace.
The institutional investor space is where the big OZ money was raised early on through mega-deals that weren’t impact-focused but happened to fall within Opportunity Zones. They essentially got tax breaks for projects that penciled out regardless of the tax exclusion, but I’m quite confident the best cherry-picked deals are over, and good deals will be harder to find for the big players. I expect fewer non-impact deals in the future, and that the space will be cleared out for those with an understanding of impact investing.
Currently, there is no requirement for impact reporting for OZ projects. What do you think will happen if reporting standards are instituted?
Hutchins: There will be an exit of a considerable number of players who want the OZ benefits to fit into their decades-old capital stack model for the same projects they have always done. We welcome reporting standards because we live them. The loss of those low-impact traditional products will leave more capital investors for impact investment projects like ours. We also welcome the possible 2-year extension of the program and reinstatement of the 15% step up eligibility.
While investors say they want to make an impact, they also want to generate returns, and each investor has different priorities when it comes to the impact vs. returns spectrum. How do you find a balance that satisfies the needs of all stakeholders?
Hutchins: Impact investing does not have to mean lower returns; It just means that fund managers must accept lower fees and impact developers need to work harder at finding subsidies and tax credit financing to make the project attractive to investors. Working with not-for-profit partners allows us entry into these non-dilutive forms of capital as well. By their very nature, OZ funds are long-term investments and, with a tax exclusion on the gain, the after-tax returns are extremely attractive when done right.
JTC Americas has been the leader in OZ fund administration since the program’s inception, offering a purpose-built solution that embeds security, transparency, and compliance into every step of the investment life cycle. Our client services team’s unmatched expertise is paired with our award-winning eSTAC technology to provide fund managers and investors 24/7 access to fund information from anywhere at any time, including social impact reports.