The SBA’s Impact Investment Fund Grows Threefold
The SBA’s Impact Investment Fund Grows Threefold
Investors pursuing impact strategies continue to expand
WASHINGTON–The U.S. Small Business Administration (SBA) announced today that the Impact Investment Fund of the Small Business Investment Company (SBIC) program has tripled in the last 12 months.
“Capital investment in some sectors, geographies and industries is still lower than you would expect and like. Through the Impact Investment Fund, we’ve sent a message to professional fund managers with expertise in areas like clean energy, education technology, and advanced manufacturing as well as those looking for ‘off the beaten path’ gems in low income or economic distressed communities across the country. SBICs as a whole, fill capital formation gaps at the low end of the middle market, the Impact Fund, puts a magnifying glass where the gaps are widest,” said SBA Associate Administrator for Investment and Innovation Javier Saade.
The SBA began 2014 with two Impact SBICs managing $182 million and ended the year with six Impact SBICs collectively managing between $442 million and $572 million in total assets depending on the amount of credit guarantees approved and employed. Given the SBIC Impact Investment Fund is still well below the originally expected $1 billion leverage level, there is room to further grow the list of professional investors interested in pursuing impact strategies.
Three of the six Impact SBICs have not deployed capital. The other three have invested in 33 companies across the country and collectively employ approximately 4,600 people. These companies include an organic cage-free poultry operation in Texas, a wood waste-to-pellet fuel concern in Michigan and an educational institution in an urban low-income community in Puerto Rico.
One of the policy changes made was seemingly simple but equally meaningful – the Impact Investing Initiative became the Impact Investment Fund, making it a permanent feature of the SBIC Program. The Fund uses the rapidly evolving strategies that involve marrying financial gains and intentional social returns to narrow gaps.
Initially, SBIC’s were limited to SBA-identified impact investments, but now because of the flexibility of the Impact Investment Fund, participating funds can identify and pursue their own strategies. In addition to the expansion of this fund, SBA removed several key barriers that prevented access to it by:
- Lifting the $200 million restriction to offer licensed Impact SBICs better access to
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leverage;
- Removing the waiting period in accessing multiple leverage commitments; and
- Permitting existing SBICs to opt-in if they meet the Impact Fund requirements.
The reasons for the relatively slow deployment of impact investing strategies at the institutional level are varied and complex, but one of the main reasons, is the adoption of standards to measure intentional social impact has been spotty. The SBA and the federal government, supports the adoption of standards to further enable more institutional private capital flow to the small business community.
Information on the fund and the policy can be found here. The changes were made based on feedback from a significant number of private sector stakeholders and were consistent with themes the SBA heard from impact investors the White House roundtable on Impact Investing that was held this past summer. The comments align with the recommendations of the US National Advisory Board on Impact Investing released this summer and with the findings of the G8 Task Force on Social Impact Investing, Impact Investment: The Invisible Heart of Markets.
The six Impact SBICs are:
2011 Michigan Growth Capital Partners SBIC, LP
2012 SJF Ventures III, LP
2014 Bridges Ventures U.S. Sustainable Growth Fund, LP
2014 Morgan Stanley Impact Fund
2014 Bluehenge Secured Debt SBIC, LP
2014* Renovus Capital Partners, LP
* Renovus was an existing SBIC solely focused on education which opted into becoming an Impact SBIC in December 2014.