When Debra Schwartz ’88 came to Kellogg in the late 1980s, she had a keen interest in social enterprise — even though that term was somewhat foreign in the broader business community. “I was eager to learn how social-purpose organizations earned, raised and managed their money,” recalls Schwartz, who had worked in the nonprofit sector, mostly in human services, for several years prior to Kellogg.
Schwartz found her answer in a class taught by Professor Donald Haider
, who introduced her to the world of public finance and the ways in which industry and society could intersect for mutual benefit. That experience set her down a path leading to where Schwartz is today, serving as managing director of impact investing at the John D. and Catherine T. MacArthur Foundation
At the MacArthur Foundation, Schwartz oversees a $300-million investment portfolio that supports economic development and affordable housing organizations in the United States. With these investments, “there has to be some expectation of a financial return, whether it’s through a loan, equity investment or guarantee,” she says. “But if you do the kind of impact investing that I do, you can’t seek a market rate of return. In fact, it’s not allowed under the IRS tax code definition of a Program-Related Investment.”
Schwartz explains that, in the United States, there is an enormous need for community development financial institutions, or CDFIs. There are about 800 CDFIs in the nation, some of which focus on serving individuals (e.g., by providing payday lending, bank accounts, or affordable housing) and others that focus on small businesses (e.g., by bringing credit to businesses in low-income neighborhoods). MacArthur invests in these institutions with a long-term horizon, in most cases planning an exit after 10 years.
“We can give these institutions a cushion so that when an insurance company or a pension fund wants to invest, that investor can get a market rate of return and have enough risk mitigation,” says Schwartz, who is a past presidential appointee to the U.S. Treasury Department Community Development Advisory Board and one of the founders of the Mission Investors Exchange.
“We're essentially the shock absorber in the middle, the missing piece that we call the ‘but for’ money — meaning, but for our piece, they couldn't bring in the rest of the money,” she adds. “That's the power of our particular brand of impact investing.”