Next Street and Deutsche Bank convene CDFIs to explore Balance Sheet Innovation

By September 28, 2018 October 1st, 2018 Events, Street Smarts

On Tuesday, September 18th, Next Street and Deutsche Bank hosted members of the CDFI industry for a convening titled Beyond the Balance Sheet. There is broad demand among CDFIs to build skills, develop new structures and products, and improve on existing solutions to more fully leverage their balance sheets. The recent convening was a step towards developing solutions and capabilities by connecting CDFIs to experts from Wall Street, ratings agencies, and the FinTech industry.

The day began with opening remarks from Jim Baek, Director of the Deutsche Bank Community Development Finance Group. He shared the belief that CDFIs can better manage their balance sheets to have greater impact, which attendees and panelists used as a foundation to discuss new avenues to capital and models for managing net asset constraints throughout the day.

“The strength of CDFIs and the high quality of portfolios around the industry proves that there is success to be had in providing access to capital in underserved markets and communities, but CDFIs can better manage their balance sheets to support greater production and maximize impact.” – Jim Baek, Deutsche Bank Community Development Finance

The first session of the day explored how CDFIs can tap into the growing impact investing space, which historically has not been a steady source of capital for CDFIs. The panelists explored ways in which the industry can better connect to these investors, providing products that can fulfill their goals.

According to Delores Smith of Deutsche Bank Wealth Management, impact products tend to be labeled as alternative investments, a categorization that leads to such products being placed in a bucket that comes with added regulatory hurdles for asset managers and investors. COO and cofounder of CNote Yulia Tarasava agreed, saying that “attracting people to investing in CDFIs requires simple storytelling and simple products.”

Panelists in the second session looked at ways CDFIs can access the capital markets. They analyzed how the industry is currently participating through bonds and notes and discussed how business models from other industries could provide a blueprint for creating new investment vehicles. Alán Bonilla, Lead Analyst of S&P U.S. Public Finance Housing Enterprise Group, who has been deeply involved in rating CDFIs, encouraged attendees to go through the full ratings process. He talked about the need for the number of rated CDFIs to grow to a critical mass to create opportunities for liquidity and indexing in the market.

John Gleber, Head of Deutsche Bank Affordable and Tax-Exempt Housing, agreed with Mr. Bonilla, stating that there are capital and investors available up and down the ratings scales and that CDFIs shouldn’t fear lower S&P ratings. The more liquidity and indexing in the market the better the industry’s ability will be to access the capital markets.

In her closing remarks, CEO of Next Street Marina Linhart talked about the success of the day. “If you sparked an idea, got a new contact to follow up with, or tested an idea, that’s success,” she said as the day came to close.

“Today was about action. How do we build the tools to act, so we can move beyond the balance sheet constraints we face today? Because there will never be enough money to meet the demand and need for investment in our communities, but if not us then who? If not now, then when?” – Marina Linhart, Next Street