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What is an investment fund?

An investment fund may sound like a foreign idea, but it is far more commonplace than most people realize. An investment fund is a company whereby investors pool their money together for reinvestment into other companies and businesses. Rules for starting and capitalizing investment funds can be found under the Investment Company Act of 1940 and the US Securities Act of 1933, as well as the regulations promulgated thereunder. In fact an investment fund is legally known as an investment company and is defined as “any issuer which–

(A) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities;

(B) is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or

(C) is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.”

For more information on the Investment company act, click ,here.

How are they regulated?

Investment funds are a bit tricky, as there are many different types of funds. Some may be regulated by the Securities Exchange Commission (SEC), and others may be exempt. Unless exempt, all investment funds must register with the SEC. In addition, investment funds, whether exempt or registered, will have to register their offering to investor-members or prospective shareholders under the US Securities Act of 1933.

Furthermore, advisers of investment funds, unless exempt, and including those that are chief executive officers, managers, managing members, and other officers within a company or corporation, are required to be registered with the SEC as a federally registered investment adviser (RIA) for their direct or indirect advisory role within the company. A registered investment advisor is “any person or company that counsels entrepreneurs and business owners on the value of securities so that they may make sound investment choices.” An adviser is exempt from registering with the SEC if the investment fund has “less than 100 members and less than $100 million in assets under management”. However, each State has their own registration and exempt rules and each investment fund will need to ensure that their advisers, officers, managers, and CEOs are compliant with the State from which they are incorporated or organized.

For more information on exemptions, click ,here.

What are community investment funds?

Community Investment Funds are methods to raise capital “to empower communities by allowing community members, anyone of virtually any economic class, to invest in a community fund which in turn invests in ventures, revitalization projects or other mission-driven enterprises.”

An example of a community investment fund is the Chicago Community Trust. The Chicago Community Trust is made up of donors, community members, and organizations that are committed to addressing the issues of the surrounding area. Since 1915, the Trust has been a compilation of different memorial and supportive funds that have been used to support the welfare of children, STEM students, as well as provide housing assistance, and other community initiatives. More recently, the Trust has focused its efforts on COVID-19 relief, houselessness issues, the food desert epidemic, and racial equity and inclusion. Specifically, the Trust has a “Catalyzing Neighborhood Investment Strategy” that focuses on funneling investment to Black and Latinx communities that have been historically excluded and neglected from development opportunities.

Benefit Chicago, is another example of a community investment fund. Benefit Chicago is a conglomerate of multiple initiatives to invest in and care for communities that lack adequate resources, which includes the formation of their Community Investment Corporation. Benefit Chicago is a collaborative effort with the MacArthur Foundation, The Chicago Community Trust, and Calvert Impact Capital. This Corporation focuses its efforts on combating the lack of affordable housing within the City of Chicago. Specifically, the Corporation provides loans to low and moderate income persons so that they may affordably purchase, renovate, and preserve their housing.

Another community investment fund is The Community Investment Corporation. Since 1974, The Community Investment Corporation has provided $1.6 billion for improving and preserving thousands of rental properties in the Chicago area. The goal is to provide housing stability (a basic human need), which will then spill over to better performance in schools and work, improve the health and wellbeing of residents in the Chicago South and West sides, and attract more resources to the area (such as grocery stores, businesses, and recreational areas).

Also, there is the Chicago Community Loan Fund, a federally certified community development financial institution (CDFI). Founded in 1991, this organization has worked with low-income families to construct and renovate affordable housing and construct commercial and retail spaces. They are also based on the South and West sides of the City and focus on rectifying the effects of the extreme loss of factory jobs, shops, banks, and homes, which drastically increased during the 2008 market crash. To work with the Chicago Community Loan Fund, investors (either individuals or in groups) pool money together in exchange for below-market returns. That money is then reinvested to improve the people’s lives in the serviced communities in the form of loans for development projects.

These examples are not an exhaustive list, but they are successful in generating capital and working to provide positive growth for communities. If any of these investment funds resonate with you, and you would like to look into options for funding your own non-profit, consider consulting with us to learn the best route for you!