As the long journey toward pandemic recovery begins, impact investors are called to action on many fronts: small business development, healthcare access, stable housing, equitable education, racial and ethnic justice, climate change, and more. While we look to do our part by investing for an equitable recovery, we need to remember that this is not just about how much but also what kind of capital we put to work.
By using catalytic capital — flexible, patient, and risk-tolerant — impact investors can fuel innovation. We can bridge gaps for high-impact projects and funds, helping them build the track records and scale needed to attract conventional investors. And we can play a role in making blended finance transactions less risky, helping unlock tens or hundreds of millions of dollars toward impact that otherwise would not be possible.
In the United Kingdom, the Women in Safe Homes fund provides a powerful example of impact-driven financial innovation fueled by catalytic capital. The fund is one of the world’s first gender-focused real estate investment funds. It aims to raise £100 million to expand housing opportunities for women who have experienced domestic violence, incarceration, homelessness, and other difficult life circumstances, while also building the capacity of nonprofit organizations that serve them.
The fund presents a clear and compelling opportunity for positive impact and has experienced fund managers in Resonance and Patron Capital, but it is relatively new to the market. To offset this potential issue, we made a $5 million program-related investment to provide equity capital to the fund.
This commitment advances our global initiative, the Catalytic Capital Consortium, and adds to commitments from colleagues at Big Society Capital and the Lostand Foundation. Together, we are providing early catalytic capital that the co-managers can use to demonstrate this fund’s economic and impact potential. Catalytic funding allows for testing a promising model, reducing investor risk, and paving the way for scale and replication.
This early catalytic capital will be blended with investment from other future investors, enabling the Women in Safe Homes fund to purchase housing units across the UK and then lease them to women-serving charitable organizations. Those charities, in turn, lease the homes to their clients, offering women safe, affordable housing alongside other social programs to help them build stronger futures for themselves and their families.
By design, the fund also helps its nonprofit partners build a strong track record of property management and financial sustainability. It offers the nonprofit partners an opportunity to purchase the leased properties at the end of the lease term, so each charity can build its assets and cement its ability to provide housing solutions to clients for many years to come.
Fundamentally, the Women in Safe Homes fund uses its innovative financial approach and a pool of catalytic capital to tackle a problem that the private real estate market cannot solve on its own. Too little affordable housing is available — especially given the loss of tens of thousands of subsidized units throughout the UK in recent years. Too many landlords are unwilling to rent to women working to overcome social and economic challenges — even when they have the ability to pay.
COVID-19 has exacerbated these challenges. Rates of domestic violence are soaring with stay-at-home orders, and job loss has deepened the economic pressure that was already present.
It all points to a simple truth: having a safe place to call home is not, and never has been, a luxury. It is a matter of public health, fundamental to the well-being of families, and a pillar of healthy communities.
The Women in Safe Homes fund is just one example of the innovation and impact that investors can achieve by deploying catalytic capital. Around the world, hundreds of innovative funds, initiatives, and organizations need financial partners who are committed to their goals, willing to prioritize impact alongside financial return, and prepared to be patient and take risk as they build a record of success.
At this moment of profound social, environmental, and economic challenges, there is an opportunity for transformational change. Impact investors have a special role to play. We must go beyond conventional financial approaches, put catalytic capital to work, and make more innovation, investment, and impact possible.
This article was originally published on Resonance’s blog.