Philanthrocapitalists
The Hamilton Community Foundation has launched a new fund that provides a return on investment for community giving. The idea? That the earned income will be recycled for social good
By Peter Mitchell

The recent announcement of the $5 million dollar Hamilton Community Investment Fund (HCIF) will provide local philanthropists with the means to take their capital and invest it directly into the community to support local causes, and provide a return on investment that can be recycled for further social ventures. It allows for greater flexibility in pursuing charitable endeavours, and a quicker return on investment for both the community and the donor. According to Terry Cooke, president and CEO of the Hamilton Community Foundation, it is an initiative that will prove attractive to modern philanthrocapitalists who have a greater sense of urgency about seeing their investments bear fruit.

“When you think about what’s happening in philanthropy currently in North America, there is a more demanding and a more urgent approach being taken by younger entrepreneurs,” Cooke says. “Oftentimes these are philanthropists who say ‘I want to see the benefit done in my lifetime, and I want to flow that money on a much more aggressive timeframe.’”

The Hamilton Community Foundation is the charity organization dedicated to improving the city through the creation of endowment funds from charitable gifts, administering grants from investment income, and providing the leadership and resources required to build a strong and buoyant community. The HCIF is the newest tool in their toolbox, and Cooke says changes in the 2010 federal budget opened the door to flow-through granting that allow the tool to be wielded with maximum effect.

“Historically we would have had to preserve capital for a minimum of ten years and granted the income off the investments,” he explains. “These restrictions on spending down capital have been removed. It allows philanthropists to define the term, the defined outcome, and the pacing with which they want the benefits of their philanthropy to flow back into their communities. If it’s their choice that it remain in perpetuity and simply the income granted on a 3 ½ per cent a year basis they can do that. But if donors choose to donate a million dollars and have it flow out over ten years –a hundred thousand dollars a year plus interest– that’s their prerogative, and that is completely supported and encouraged in fact by the recent changes by the federal government in the last budget”

Part of the inspiration for the HCIF comes from Bill Young Jr. He amassed a small fortune as  the CEO of Hamilton Computers and then repeated the feat with Optel Communications before founding Social Capital Partners (SCP), a non-profit social finance company in 2001. He also advises on the administration of the Young Fund, a $40 million gift his mother, Joyce, made to HCF in the spring of 2000, one of the largest single acts of philanthropy in Canadian history. According to Cooke, Young is one of the leading voices in Canada calling for private and public foundations to be more aggressive in terms of looking for direct impacts in their community investments, and he has the experience to give his voice authority.

Cooke cites the example of the Active Green and Ross Tire and Auto Centre franchises. SCP offered the company loans to commit to hiring disadvantaged workers in their stores, with the rate of interest dependent on the number of social hires they employed. The initiative is a rousing success for all parties involved. The workers who previously faced employment barriers have proven their worth, and the program has expanded from one to more than 20 stores and counting, with each successful hire improving the terms of repayment.

“The payback on the loan diminishes with every hard to employ person that they’re able to place within a franchise,” Cooke says. “There’s an assessment done both in terms of the required payback on the capital, and that is calibrated and in fact lowered if you’re doing more social good. That’s the magic we’re trying to create here. We’re trying to marry both an investment return with a social benefit to the community.”

That marriage begins with a $5 million dowry of unrestricted capital that comes directly from the assets donors have requested be targeted specifically towards Hamilton’s greatest needs. The hope is other funds will be added after the initial honeymoon period has proven the relationship will thrive. Over the next few months, board members will do the due diligence necessary to ensure the plan is well thought out. They will establish the necessary policy and financial framework, and identify projects that align with the HCF’s focus on job creation, affordable housing, capacity building, arts incubation and other social enterprises that may not meet the risk criteria of banks and other traditional lending institutions. Cooke hopes they will start to invite proposals sometime in the next calendar year.

“We’ll very likely be looking at something in the area of arts incubation and social housing. It probably will be sometime further down the path that we’ll look at social enterprises which are small businesses with a social good involved. I suspect that what we’ll want to do is take a fairly wide cut at the community and invite people with good ideas to bring them to us.”

The fund is not without precedent and board members are working closely with a number of private foundations who have successfully implemented similar initiatives; notably the Edmonton Community Foundation. They launched their Social Enterprise Fund in partnership with the city in February 2008, with both parties each committing $3 million to its creation. The Alberta Capital Region and the Alberta Real Estate Foundation have also invested $500,000 apiece. It is considered one of the leading community foundations in the country, making it the perfect template to work from.

“We’re not trying to reinvent the wheel here,” Cooke says. “The reality is that there is lots of institutional knowledge out there at foundations that have been doing this, especially in the U.S., for decades. Certainly in Canada the private foundations have been involved in community investing for a considerable period of time. As a result we get the benefit of both their mistakes and their knowledge.
We’re trying to learn from the best practices of Edmonton and a number of other private foundations who have done this successfully for a long time. So it’s on the leading edge but not the bleeding edge.”


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