Next Street, Deutsche Bank, and CDFIs explore Balance Sheet Innovation

By September 28, 2018 July 24th, 2019 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 and develop new structures and products to better leverage balance sheets. This convening was a step towards balance sheet innovation. Attendees explored solutions and capabilities to connect 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. Throughout the day, participants used this as a foundation to discuss new avenues to capital and models for managing net asset constraints.

“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

Beyond the Balance Sheet, Balance Sheet Innovation. CDFIs, Wall Street, Rating Agencies, and Fintech experts

The first session explored how CDFIs can tap into impact investing, an are which historically hasn’t been a steady source of capital. The panelists shares ideas for how 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. Therefore, these products are placed in a bucket that comes with added regulatory hurdles for asset managers and investors. COO and cofounder of CNote Yulia Tarasava agreed. “Attracting people to investing in CDFIs requires simple storytelling and simple products,” she said.

Panelists in the second session looked at ways CDFIs can access the capital markets to drive balance sheet innovation. 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 said the number of rated CDFIs needs 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. “Capital and investors are available up and down the ratings scales,” he said. “CDFIs shouldn’t fear lower S&P ratings.” With more liquidity and indexing in the market, CDFIs will get more access to 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