LISC CFO Christina Travers is among the impact investing leaders who contributed commentaries to a new book, The Social Justice Investor, and joined a panel discussion celebrating the book’s launch. In her essay, “Laying the Cash Tracks,” (reprinted here) she explains the evolution of LISC’s capital markets experience—noting how discouraging Wall Street conversations eventually led to transformative, community-focused investments.
The essay below is excerpted from The Social Justice Investor: Advance Your Values While Building Wealth, Whether a Few Dollars or Millions by Andrea Longton. Broadleaf Books, 2024
Even in the moment, a meeting with Michael was surreal. He was a “master of the universe” type on Wall Street, meaning that he believed his opinion was the authority for finance and investment decisions on the biggest stage in the world. One day, he and his team showed up at my office to discuss how Wall Street could finance community development in the United States. To be honest, I didn’t believe they would really show up until I watched as he leaned his elbow and forearm on our reception desk.
We had submitted a proposal to Michael’s firm to finance our lending operations through a fixed income bond traded through Wall Street. Michael had come to our offices to respond to our request that his team facilitate the bond’s issuance.
As a senior leader at one of the biggest household names on Wall Street, Michael was a proud representative of traditional investing. The influence his firm held over the US capital markets was powerful. The firm’s stamp of approval could overcome some of the arbitrary barriers that keep low-wealth communities from access to basic financial products.
If he said yes.
My team represented the Treasury and Capital Strategies Division of one of the largest social justice investment shops in the United States: Local Initiatives Support Corporation (better known by its acronym, LISC). Our job was to bring money in so our loan officer colleagues could lend it out.
Our loan officers were incredible at their jobs. They underwrote historically marginalized and/or low-income borrowers who had been overlooked by mainstream financial sources. They worked with borrowers to create a loan agreement and servicing plan that worked for the borrowers, their communities, and LISC.
My job was to (a) raise the capital needed to make these loans and (b) make sure we repaid our investors the principal and interest as it came due.
My job got a lot harder after the 2008 financial crisis. Even though the organization performed very well throughout that period of economic upheaval, bias against our client base only got worse. Mainstream investors had bought into the opinion that low-wealth communities, particularly those with Black and brown borrowers, were uncreditworthy, meaning that LISC, which almost exclusively served these communities, was inherently “high risk.”
No amount of audited financials, cash reserves, or other data-based evidence could convince them otherwise. After all, logic is not an effective means of combating bias.
I felt painted into a corner.
Our capital sources had dried up. After the financial crisis, money-centered organizations like banks and insurance companies had added layers of risk mitigation to prevent future losses. Despite our strong performance, LISC was hamstrung by shorter terms and restrictive conditions that kept us from reaching our borrowers in these underserved communities.
Managing a loan fund’s financial capital is like laying tracks ahead of a moving train. A train of loan officers is hurtling forward, driving capital and loans to the people and communities we serve. My team built the cash tracks, making sure we always had cash in the bank to wire money out to our approved borrowers. The train couldn’t take its cars of capital anywhere if there weren’t tracks to get them there. To do so, I was constantly raising capital in some type of financial product (usually a loan or a grant) from financial organizations like Michael’s. Then the loan officers would deploy that capital to our borrowers to use for projects like small businesses, childcare facilities, and affordable housing. Sometimes it felt like we were building the track just ahead of the moving train to keep it on schedule. It was constantly surging forward.
Money in, money out.
In the early 2010s, the capital was slow and restricted. The individual tracks were shrinking to smaller pieces; I had to work faster to lay the same length. Market conditions meant that I had to knock louder and longer at doors to buy more track. Some doors stopped opening. Others offered shorter and shorter lengths of track.
The train was in danger of slowing to a crawl, trapped in its own circular route. Something had to give. We had to try something new, even if it meant taking a few hits.
That meant that, despite my instinctual pessimism about why Michael was in our office right now, I found myself hoping this wouldn’t be one of those hits.
“That idea is never going to work.”
I felt my flickering hope die.
Michael launched into a lengthy diatribe and I steeled myself for a very familiar resolution. My team had already encountered a steady stream of politely hesitant responses from investment bankers up and down Wall Street—or worse, exuberant positive reception from sales representatives who provided terms too optimistic to believe for a first-time bond.
Michael’s speech was cresting, finally reaching the point: “No investor will buy a bond from a community lender at these prices and terms. Plus, the issuance is entirely too small. The market will reject anything less than a $500 million offering.”
It was finally time to cut in.
I adjusted my watch and met his eyes. “I appreciate your points. We believe there’s a market of investors who are interested in a financial product that offers a modest financial return and a rich social impact return. Is there a scenario in which you would consider underwriting us and selling our product to new investors?”
It didn’t work out with Michael.
Fortunately, I wasn’t the only person looking for ways to build more train tracks.
Serendipity would bring me a critical tool for our tool box. Worlds collided when a former classmate named Gerard (not his real name) and I were asked to speak on the same panel at a financial services conference. Our careers had never intersected and I was glad to reconnect with Gerard, who was now a senior leader at S&P Ratings, one of the “Big Three” investment ratings agencies.
Before that panel, I had believed that community loan funds had no pathway to apply for an investment rating from S&P Ratings. Without a rating, LISC wouldn’t be able to effectively raise capital from the public capital markets. Public capital markets were the wide, well-lubricated tracks to the smaller tracks of private capital markets. At the time, we were forced to stick to these small tracks from private capital markets, knocking on one door at a time for terms and pricing that worked for the investor at the expense of our borrowers.
Luckily for me, Gerard was creating a new pathway for community lenders to pursue an S&P rating.
All I could see were train tracks. Long-term, low-cost train tracks that stretched to the horizon. And a bigger, faster train.
Public capital markets meant that we could knock on thousands of doors at the same time, asking for tracks of long-term, low-cost capital.
LISC’s strong performance, as well as its financial strength, would propel us toward an investment-grade rating from S&P Ratings. That rating would be the key that unlocked the door to the public capital markets.
In fact, our initial offering was five times oversubscribed: we had $500 million of interest in the initial $100 million product. And we weren’t the only community loan funds trying to crack the code. Within five years, community loan funds had raised over $2 billion through S&P-rated bond issuances in the public capital markets, at terms and pricing designed for positive community impact.
Access to the public capital markets has transformed how community loan funds are able to raise capital. We were delighted to affirm our position that investors are interested in an investment product that creates significant positive social impact returns while generating sustainable financial earnings.
Thanks to Gerard, we had the confidence to persevere, despite hitting walls and receiving negative feedback. Since that time, my team has facilitated hundreds of millions of dollars into low-wealth communities through community lenders like LISC.
That’s a lot of train tracks.