Ben has asked me to describe our approach to investing in community development. I began working on our community investing program when I joined Benchmark last August, and almost a dozen investments later it is exciting to see how our approach has developed. From the start we knew that we wanted to apply the principles of asset allocation and diversification to community investing. As I researched the different types of community development organizations and investment products, our strategy continued to take shape and a theme emerged for our investments: unique stories.

The community development organizations that we invest in are all unique stories – they are innovators and leaders in a variety of fields, often addressing niches of need that were overlooked before these organizations stepped in. Part of their work is usually technical assistance for other organizations that want to replicate their model, or for governments who can further leverage their expertise in community development.

This approach not only focuses our investments on the leading edge of community development, it also allows full diversification while providing reasonable constraints for the number of investments. Our community investments are diversified not only by their quantity and geographical distribution, but also by the size of organizations, the scope of operations, and the area of social impact. The limited number of investments allows us to develop relationships with investees. This helps us to a better understand how our investments are being used and what risks we are taking on, and it also leads to identifying new ways of working with investees to leverage each other’s resources and achieve higher social impact.

A highlight of this relationship-building was a trip I took to Nicaragua to visit the operations of Sostenica/CEPRODEL, a partnership between a loan fund and a microfinance institution and one of our investees. In a whirlwind 4-day visit hosted by Sostenica’s founder and CEPRODEL’s Director of Credit, I visited several urban and rural borrowers, spoke with loan officers, and got to know Sostenica’s Board of Directors. Discussing the barriers to Nicaraguan economic development and the role of microfinance with borrowers was a powerful and enlightening experience. Witnessing the impact of community investments and learning about CEPRODEL’s credit policy from loan officers enriched my confidence in Sostenica/CEPRODEL and my appreciation of Benchmark’s connection with the people who put our investments to work. This trip truly contributed to the quality of our investment, and we hope to take advantage of opportunities to deepen our relationships with other investees in the future.

Developing our community investment program continues to be fascinating, engaging and fulfilling work. I am excited to further explore community development organizations and see how our program matures moving forward.

It has been almost a year since my partner doubted something I blogged about the emergence of private equity stock markets and I began sulking that no one believed me (it turned out to be very true...).

Then I couldn't find a way to blog without bragging that all the things Sam and I saw coming were in fact happening. Now, a year later I'm glad to be able to say that the approach we have taken is not only vindicated with positive 1st and second quarters, but even being touted by others as the strategy of the future. James Montier in his new book Behavioral Investing says the following: "Rather than having endless numbers of specialist managers, each charging a fee,surely it would be better to have one manager and pay one fee,but allow that manager freedom to invest wherever the opportunities lie (p 244)." He goes on to speak about the importance of shorting rather than being tied for some abstract reason to benchmarks (ie indices which track the rising and falling markets). We are especially enthusiastic about the overlays we have designed to benefit in a continuing sideways market such as deep out of the money puts and our hedged equity pool which invests heavily in our screened indices when the market is down and divests and hedges below the market when it is up.

I'd love our analyst Keely Byrne to pick up where I left off last year, to describe the Community Impact pool that is now a reality...