A new Web portal has been launched that offers advisors and investors a clearer entry into the world of community development finance institutions (CDFIs).
CDFIs comprise a niche inside the impact investing realm, usually consisting of unregulated loan funds devoted to funding local businesses and non-profits. While there is growing interest in such entities, whose funded programs can range from solar power for affordable housing to financial services for immigrants, they operate mostly under the radar of analysts and can be a baffling market to assess.
To help investors explore the hundreds of funds that operate in the niche, the rating service formerly known as the CDFI Assessment and Rating System (CARS) this week rebranded itself and launched Aeris Cloud, an online portal that offers data and analytics on the financial performance and social impact of these community investments. Among other things, the portal includes a "CDFI Selector" that enables investors to search by impact area (women, food, healthcare, etc.,) as well as various tools to compare CDFIs with one another.
At the same time, CARS changed its name to Aeris, a combination of the Greek word "aer" (air) and the initials I.S. (information service), denoting the organization's effort to increase transparency for community investing through improved information.
"By introducing these new products, our goal is to provide different levels of information for wealth advisors, foundations and pension funds who are exploring this industry," said Aeris President and CEO Paige Chapel.
For the last 10 years, Aeris has performed deep-dive due diligence on CDFIs, rating entire institutios rather than individual loans. Investors finance its research.
The portal is an important tool because assessing CDFI risk can be tricky, Aeris officials said.
CDFIs are considered both non-profits and financial institutions and, although they are unregulated, Aeris has rated them using the same CAMEL (capitalization, asset quality, management, earnings and liquidity) analysis that is used by banking regulators. But Chapel says conventional capital ratios are not appropriate for CDFIs because an estimated 5 percent to 80 percent of their revenues may derive from grants or government contracts.
"If you are looking at investing in them and you want to understand risk, you need more nuance," she said.
Aeris puts about 120 hours of research into each of its CDFI reports, which range from about 45 to 60 pages.
But Aeris offers advisors and investors other ways to assess CDFIs:
• Free one-page fact sheets that summarize a CDFI’s mission, focus, impact and financial highlights of each CDFI.
• "Performance maps" that summarize CDFI financial and impact performance. The maps include tables and graphs from the ratings reports, all of which can be viewed online or downloaded for use in Excel.
• CDFI analytic tools, including charts and graphs that summarize historical trends for key performance metrics and thus help investors compare CDFIs.
* Opinion reports of 10 to 12 pages that break down CDFI performance and the rational behind their ratings.
Aeris rates 96 CDFIs, but Chapel says the number is growing.
"It's very early days," she said, adding that the goal is for Aeris Cloud to become "the central repository for very clean credible data on the enterprises that comprise community investment."
The firm's website is at www.aerisinsight.com.
