Investing in the Local Community | ACFA-Cashflow

Community Investment Funds have a lot to offer.

Scale, efficiency, diversity, and liquidity are advantages of a CIF in a thriving local economy.

  • Because it can generate an endless sum of money and fund an infinite number of local companies, a CIF has the potential to be more scalable. Remember that when we talk about “size,” we don’t mean more outstanding transactions like Wall Street. However, we need a lot more community investment funds (CIFs) so that the economy and community investment may be effectively transformed.
  • Investors only need to complete due diligence on the fund once, and the fund does so on outbound investments. This makes a CIF more efficient.
  • Compared to investing in a few local businesses, a CIF is more diversified.
  • A CIF may be better positioned to provide liquidity to its investors than a single company (i.e., a way to sell the investment). Investors who want to withdraw their money from the investment may do so by creating a CIF.

Indeed, funds are subject to stringent regulations.

Yes, most of the time. A community investment fund may be structured to avoid the regulatory requirements and costs associated with the Investment Company Act, which makes it simpler and more cost-effective to operate on a community scale. To generate funds for a CIF, a CIF must adhere to securities rules and may do so using community capital initiatives such as direct public offers or Reg A+ issues.

CIFs of Various Types

The following are examples of CIFs that the Investment Company Act does not cover:

Fund for Charitable Lending

This is the most common CIF model because charities are immune to federal securities rules. Investors may only purchase investment notes from the fund, run by Section 501(c)(3) charitable organizations. The nonprofit’s mission-aligned investments are the fund’s primary focus.

Revitalization of the Real Estate Sector

The Investment Company Act does not apply to this CIF since real estate investments are excluded. This fund, which real estate experts often helm, is usually aimed at reviving an area. Investors may choose between stock, debt, and revenue share investments. The fund may buy and refurbish the commercial, residential, mixed-use, or industrial property, and subsequently rent or sells.

Multi-Functional Investment Fund

To escape the Investment Company Act, a fund must have an established line of business that is separate from managing an investment fund; that is, it must have a main operation other than investing in securities. It is also prohibited from investing more than 40% of its assets in “investment securities,” which includes majority stakes in other firms. 

Real estate, secured monthly payment installment loans, and other corporate assets are also excluded. Assuming these conditions are satisfied, the fund may offer investors an ownership stake in the company running the fund, take stock holdings in other businesses and share any profits made. 

In this case, we may provide an example: Rental space, consultancy services, equipment rentals, and an incubator are all features of this advanced manufacturing co-working environment. 

Community-based funding is possible for this firm as long as the company’s assets are well-diversified enough to fulfill the 40% asset diversification standard.

Jill E. Washington