RSF’s Liquidity Portfolio: Do You Know Where Your Cash Is?

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February 1, 2010

By Taryn Goodman

Recently there has been a lot of buzz about moving your cash, both as an individual and as it relates to foundations participating in mission-related investing (MRI).  Here at RSF, we have seen evidence of this everywhere, from a great video about the environmental  effects of checking and savings accounts to the Huffington Post’s recent campaign urging readers to move their money from ‘too-big-to-fail’  banks to community banks that spur local economic growth.  Much of this energy is stemming from recent economic woes caused in part by big banks’ risky mortgage bets and their ensuing bailout by the federal government (aka, we the taxpayers).

A big supporter of the campaign to use local community banks, RSF believes in the theory that ‘small is beautiful,’ which has translated into an investment thesis comprising five values and criteria that RSF incorporates into its investment decisions.  We seek to make sure all our investments are direct, transparent, personal, focused on long-term relationships, and place-based. With three mission-aligned portfolios for our Donor Advised Funds, RSF actively seeks to invest cash in smaller, local banks and credit unions that focus on lending to organizations that do social and environmental good.  I wanted to share some of the ways we have allocated our cash as well as additional resources for you to use to ensure your money is making an impact.

RSF’s Liquidity Portfolio

RSF’s Liquidity Portfolio is the most liquid of our three Impact Investing Portfolios; thus, the assets are all invested in CDs and money market accounts.  All of the investments that have been placed in public banks are insured, either by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Association (NCUA).  The strategy for distributing the cash is mainly supported by the Certificate of Deposit Account Regulatory Service, or CDARS, program, where an organization simultaneously gets access to sustainability-focused local banks, as well as multi-million dollar FDIC insurance on CD investments.  Unlike a normal deposit in a bank, in which only $250,000 would be FDIC insured, an organization can deposit up to $50 million through the CDARS program and still receive the same FDIC insurance.

How does this work, you might ask? An example would be if an organization takes a lump sum, say $10 million, and deposits it in a participating CDARS bank (there are 3,000 to choose from).  At this point, you and the bank that you chose sign a CDARS agreement in which you agree to a term and a rate that is suitable for your investment strategy.  Then comes the interesting part!  The money is divided up among other CDARS banks in increments below $250,000 so that both the principal and the interest are eligible for full FDIC insurance.  The way the program works, you only have to interact with your one bank of choice and you receive one statement consolidating all of your investments so as to avoid trying to keep track of many different banks.

RSF utilizes the CDARS “Banking on Communities” program to channel our money to specific sustainable Community Development Financial Institutions (CDFIs) and minority-owned banks.

Examples of our holdings include:

• Carver Bank – focuses on lending in the areas of affordable housing, commercial real estate, family housing, and retail to African-American and Latino communities.

• National Cooperative Bank – focuses on lending to food  and housing cooperatives, native groups and non-profits, while also supporting overall community economic development.

• Southern Bancorp Mississippi – operates in low-income areas in Mississippi and Arkansas to promote economic development through affordable housing and grassroots community development.

• Legacy Bank – founded by three African-American women, Legacy Bank is the only certified development bank in Wisconsin and is focused on real estate and small business loans to minorities and women in areas of high economic distress.

• OneCalifornia Bank – one of the first chartered banks to be wholly owned by a foundation. Supports sustainable businesses through a hybrid bank/foundation structure that allows the bank to financially support the community and provide programs and grants.

• New Resource Bank – San Francisco-based bank founded in 2005 to serve sustainable businesses in green real estate, clean technology, and natural and organic consumer products.

For more information on the CDARS program for socially responsible investors, visit: cdars.com/whycdars/sociallyresponsibleinvestors, and to read a previous Reimagine Money blog post about RSF’s CDARS investments, click here.

In addition to participating in the CDARS program, RSF has invested money from the Liquidity Portfolio in credit unions that are supporting economic development and sustainable businesses.  Although investments are insured through the NCUA, RSF completed additional due diligence work on each institution, looking at key ratios that evaluated each bank’s returns, liquidity, leverage, and delinquency, in addition to their social and environmental impact.  Some of the credit unions RSF has chosen to work with include:

• Permaculture Credit Union – provides low-income financing in support of the ethics of permaculture including care of the earth and care of people.

• Self Help Credit Union – provides loan products primarily between $85,000 and $125,000 to women and minority borrowers.

• Latino Community Credit Union – provides mortgages, used car, and credit builder loans to unbanked Latinos while also offering financial education programs. One of the fastest growing credit unions in the country with over 51,000 members and $65 million in assets.

A foundation could easily replicate this portfolio through the CDARS program with a little due diligence work.   Moving your cash is the easiest way to engage in mission-related investing and ensures your investments are aligned with your values and the purpose of your organization.  So, if you or your organization have not examined where your assets are invested, there is no time better than the present to take action and move your money!

For more information on RSF’s Impact Investing Portfolios, visit rsfsocialfinance.org/services/investing/impact-investing-portfolios/.

Taryn Goodman is Impact Investing Manager at RSF Social Finance.  Stay tuned to the Reimagine Money blog for another post from Taryn on how to invest your personal cash in a socially and environmentally responsible manner!

• Published by Jillian McCoy
• Categories: Blog, Donor Advised Funds, Economy, Investing, Local economies
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