Interview with Donald Hinkle-Brown, CEO of The Reinvestment Fund

As President and CEO, Don Hinkle-Brown leads a staff of 70 highly skilled lenders, researchers, developers and other professionals at The Reinvestment Fund, a national leader in rebuilding America’s distressed towns and cities through the innovative use of capital and information. With over 20 years of experience in the CDFI industry, Hinkle-Brown is widely recognized as an expert in developing new programmatic initiatives, raising capital and creating new products to meet market demand. Hinkle-Brown previously served as President of Community Investments and Capitals Markets at TRF, leading TRF lending during a tenure where it lent or invested over $1.3 billion. Hinkle-Brown has also provided his underwriting and capitalization expertise to many community development loan funds and organizations, including the Hope Enterprise Corporation, Opportunity Finance Network, LIIF and as adjunct faculty at the Center for Urban Redevelopment Excellence at University of Pennsylvania and University of New Orleans. He serves as Community Development Trust’s founding board member and until recently was on the board of Housing Partnership Network and its affiliated CDFI. Hinkle-Brown has also served as adjunct faculty at Temple University’s Geography and Urban Studies program and the University of Pennsylvania’s City Planning department. He holds an M.B.A. from the Fox School at Temple University in Real Estate and Urban Planning as well as a B.A. in Economics.

IBR: Could you tell us about your career – how and why you chose to lead a community development financial institution (CDFI)?

Donald Hinkle-Brown: I’ve been at The Reinvestment Fund for almost twenty-four years now, and prior to that I was in regional banking at banks that are no longer here – let’s put it that way. Their successors all rolled up into PNC. I started my career with the intention of getting into banking. Banking, for me, was a family profession. My father had been a banker. That was my career path.

Two factors led me out of banking. First, in my coursework as an undergrad, I took a course on the moral foundations of professional ethics, which stuck with me. Then I got into banking in the hey days of the eighties when bankers had forgotten whose money it was that they were trading and investing. I had been asked by the bank to volunteer with The Reinvestment Fund, which was called The Delaware Valley Community Reinvestment Fund back then. I met Jeremy Nowak, and he taught me what banking was really about. My day job became increasingly boring, and my evening volunteer work with Jeremy became increasingly interesting. Eventually, I made a career switch.

IBR: Could you tell us more about the role of morals and ethics in banking?

DHB: Many people believed that there was such a thing as a profession, which was differentiated from a job. You have some duties and civic expectations. The course went through medicine, engineering, and finance. It presented the moral dimension of work, and it stuck with me. Banking was once a profession, and it does serve a civic purpose: savers’ money being put to work with borrowers, and that intermediation is not just a profit-seeking activity. It really does serve a public purpose, which is why banks are given charters and why banks are regulated. But when I got into banking, I didn’t find the profession. It was really disheartening.

IBR: Given increased regulation and scrutiny today, do you think that there is a resurgence of the idea that banks do serve a public purpose?

DHB: No, I don’t think the dialogue has moved anywhere near banking as a public purpose. It’s been a battle of cumbersome regulations, because the industry has become complicated. I’m a firm believer that derivatives and swaps are essentially insurance and should be regulated, but we also don’t regulate that industry very well, especially at the state level. We see stories every year of misspent insurance money and poorly regulated insurance companies.

I think the battle has been engaged around safety and soundness, and lost in that is public purpose. When one talks about predatory lending or foreclosure abuses, you’re on the other side of the tennis court from the positive moral dimension. No one gets it back to the affirmative: what is your affirmative responsibility? Every now and then you hear about fiduciary duties of brokers and financial advisors. That’s the beginning of a conversation, but it really hasn’t gotten started very much.

IBR: As a CDFI, what advantages do you have in capital raising and investing?

DHB: CDFI is a designation from the US Treasury, and if you look at the application to be a CDFI, it’s essentially due diligence on your dedication to mission, and lighter on everything else. It’s not a designation of excellence. It’s not a designation of effectiveness. It’s a designation that the money put in your hands will serve a mission. As a result, it is an advantage in that those looking to put their money to a mission trust CDFIs, having been vetted and having some direct accountabilities around this mission-serving purpose.

I don’t think that it’s an advantage in many other respects. It’s a tiny little cul-de-sac in the financial industry, and sometimes as a result, our industry has set themselves up in ways that make a lot more sense in non-profit law and non-profit finance. Those structures don’t bear much relationship to conventional ones in the marketplace, and there are reasons why. In essence, we’re all little story bonds. We’re all trying to sell stories, and we’re all fairly small.

IBR: It sounds like there is an appeal being able to market to socially-conscious investors. Have you seen any uptick in interest in socially responsible investing on the capital raising side?

DHB: There is some increase in interest, but I don’t want to overstate it. The impact investing field and the names we had for it before Judith Rodin created that name at Rockefeller with some of her staff. We used to call it socially responsible investing. There is an uptick of interest, and there is a new generation of wealth. There is a new generation of inherited wealth and a new generation of tech wealth. Of course, there’s the generation of hedge wealth as well: people making 2 and 20 on other people’s money and making a lot of money for themselves. It leads to a new class of people looking to do philanthropy. Charitable remainder trusts have become a big field where people are parking their philanthropy in one place and getting back to it later, which leads to an investment opportunity. Although, it’s an unfortunate philanthropic missed opportunity, because it’s stalled from actually being philanthropic.

So there is new activity, and the lay of the land is very different than it was before, but I would say there was an earlier, very fertile time that was even easier to raise money in. That was in the years of the divestment from South Africa. There was large movement to filter investment: no guns, no tobacco, and no gambling. No Apartheid became the new label, and a host of investors – especially religious investors – and also run-of-the-mill values investors were looking for more affirmative places to park their money and make sure it was doing some good. It’s one question to make sure your money doesn’t do harm; it’s a totally different challenge to make sure it’s doing good. In the late eighties and early nineties, there was a boom in the religious community and a bunch of individual investors looking for socially just investments. It was led by a number of religious orders across denominations and by some individuals like Judy Wicks looking for places to put their money where it would have positive effects. That was also a time when it was fairly easy to raise money, albeit on a different scale. (We were all much smaller then, so a dollar went a little further.) There are ebbs and waves in the ability to raise money and people’s interest in getting more qualitative—instead of just quantitative—aspects of what their money is doing.

IBR: Could you elaborate on your investor universe?

DHB: We have over 850 unique investors, 500 of whom are individuals, but ten banks represent the vast majority of our funding. There is the number of investors, and there is dollar weight of investors. What we’ve found is that having a diverse array of investor types gives us a counterweight to becoming captive to the mission of that one small investor group. It allows us to stay true to our original intention of serving low income people and low income places in a very particular business plan. This way, we don’t become the ACME bank private label fund.

We are within the Community Reinvestment Act (CRA) industry. A tremendous amount of the money we secure is because of two things: the CRA (which requires banks to invest in low income places or people) and the IRS’s regulation of philanthropy. As long as foundations still have to give away money and banks have to invest in low income areas, the core of our investment practice is fairly assured. What we like to add to that is looking for individuals and civic institutions to invest, mostly because of the network effect of cementing those relationships. They become invested in our fund and a take a degree of ownership.. They then introduce us to people, advise us, and even caution us when we’re going into a place where we don’t quite understand the context. It becomes a network that, with six degrees of separation, get us to any mayor where we work. With a few degrees of separation, it can connect us with a civic leader we need to talk with. It’s been politically and civically very powerful to have a wider net. That was the genius of the founding of TRF back in 1985 with Jeremy Nowak. Many loan funds were founded back in that time, but very few of them maintain this connection to a broad array of investors. I think this makes us a stronger institution.

IBR: How do you navigate the dual mission of ensuring strong community development and simultaneously generating returns for investors? Has that balance changed as the fund has grown?

DHB: We are a debt fund and issue promissory notes. The equity that underpins the safety of those notes is entirely philanthropy and public sector, so our net asset position is gift capital. We raise debt capital on top of that with a host of different offerings. As a result of being a debt fund, we have to manage yield, but yield is also fixed. A private equity fund or venture capital is managing value; we’re managing cash flow. We preserve capital and manage cash flow instead of using capital to build the size of that capital. There were times in our past where assuring returns to our investors might have had some degree of tension, but that hasn’t been the case for decades. We’re quite stable. We have very substantial net assets, the earnings from which creates a cushion to make sure our cash flow is positive.

The challenge is that as we’ve institutionalized, we’ve become bigger. As we’ve broadened what we do from affordable housing and community facilities to other asset types, other niches, and other broader geographies, it’s been about the challenge to deploy the money with high mission. How can we make sure that every transaction is community-supported and community-advancing? There can be a distraction as you become bigger and as you broaden what you’re willing to do. You can get lost in the world of economic development, because economic development is not always about low-income people, nor is it always about social justice or equity. Community development, at its core, is about low-income people. You can go down a highway of economic development and find yourself financing things that are about jobs and about building an economy but not really about people or any particular kind of people. We’ve tried to do more and more, but we’ve been trying to keep our anchor in low-income people and low-income communities. Our CDFI status requires us to do that, but actually doing it on the transactional level is always a challenge. As staff changes and programs change, that’s the constant exercise.

IBR: What does TRF do relative to the rest of the socially responsible investing landscape that is particularly effective when deploying capital?

DHB: I think we’re quite unique in certain ways. We’re the only CDFI in America that takes it upon ourselves to not only intermediate mission capital but to also be an intermediary of data, so we’ve created (PolicyMap), which is a spatial database and mapping service  on the web. We’ve build up an inventory of spatially relevant public policy data, which allows decision-makers to look at a map, choose their data layers, make their own associations, and then make a policy decision or an investment decision. We use it ourselves inside TRF, but we knew that to make this a long lasting and self-improving tool, it needed to be a business of its own. It needed to be not only our infrastructure, but also to be an externally facing product. That is fairly unique.

Prior to PolicyMap, we had – and still have – an advisory group (which we call Policy Solutions). The unit advises government and philanthropy on the impact that they make with their programs and investments. We advise HUD on the effectiveness of the Neighborhood Stabilization Program. We advise foundations on the effectiveness of their grant making. We advise other CDFIs on the effectiveness of their investments as well.

IBR: How well do government officials respond to PolicyMap, and what does TRF do to make sure that policy makers understand how to act on its information?

DHB: While data hasn’t had a very long life as a tool in state and local government, there is something about the nature of the visualization of a map that makes a politician or a senior bureaucrat stop in their tracks. They instinctively understand jurisdictions, and they think in a geospatial context constantly. As a result, a visualization of places they know immediately communicates a thousand words. We’ve seen that as soon as you can create a format familiar to the policymaker, it is immediately understood. There is a very low threshold of adoption once you get it in their hands. We do have thousands of data layers, which can be intimidating when deciding what to look at, but the interface is quite simple compared to other programs that require a specialized graduate degree to operate. This is just a website with buttons and drop-down menus. It’s not quite Google, but it’s much easier to use than specially designed software.

Philadelphia has had multiple agencies jointly subscribe to Policy Map, and the city has been using it as an information exchange platform to share data between departments. If any one of those programs is interested in what another agency is doing, they can see it. If an agency is applying for a federal grant, they can use the data already in Policy Map or use it as a vehicle to display data from multiple agencies. It speeds government and speeds decision-making. It’s one of the good stories about government efficiency these days.

IBR: What can investors to avoid some of the unintended consequences of investment, such as gentrification and displacement?

DHB: Your typical anonymous capital markets investor probably isn’t going to do anything, and there probably is little they can do. They are just participating in the marketplace. I do believe that things like gentrification and unmanaged change that destabilizes people’s lives is the responsibility of a whole group of people. You can be an investor like a CDFI and pay a lot of attention to it, or if the team of people involved includes the public sector and the investor community, it really is the public sector that has the toolkit to moderate what happens when too much capital enters a marketplace. It’s a classic bubble problem: gentrification is a human and capital bubble. It’s dramatic change and exclusionary effects follow. The public sector can ameliorate that, and we’ve seen this in Philadelphia and Baltimore where programs are designed to preserve long-tenured residents, whether that’s a basic system repair program, an insulation and weatherization program, or homesteading tax preference. There are a number of ways you can structure public resources, and sometimes that’s combined with private resources. Often, a system repair program comes with an FHA-insured home improvement loan. There are ways you can combine private capital and government guarantees to ameliorate what’s going on in the marketplace.

I’m a strong supporter of the idea that cities are living organisms. We forgot for a period of time, essentially from the sixties on, that cities change and neighborhoods change. They changed gradually – at a generational pace. People moved through neighborhoods on ladders of opportunity, some moved horizontally, and unfortunately some moved down. You can go to any neighborhood and find a group of people who used to be there, a group of people who are there, and a group of people who will be there next. That didn’t used to be so controversial as it is today in urban America. People began to romanticize the steady state and expect that change was automatically bad.

Now, fast, unmanaged, and high price change is bad, but there are some changes that can be beneficial. The challenge is having enough programs that deal with human capital, not just real estate prices. You have to have a balance. If you’re working on good schools and good workforce mobility training programs, you can balance things out. The elderly homeowner can get a windfall when home prices increase. I do think there’s a role for government in managing change. That’s usually the best combination: positive investment and positive response from the public sector.

IBR: What advice would you give to an undergraduate student looking to work at a CDFI?

DHB: Students can often be very focused on the hard skills, especially if they’re thinking about entering finance. That’s important: those classic spreadsheet and analytical tools, but if you want to work at a CDFI or any other place where the nature of the business value is not just quantitative, then the softer skills are really important. The value of a liberal arts education is still steady, and the components of it are still quite important, like writing skills. When you’re investing in a place and you’re writing a story about it, it doesn’t matter if you’re the best spreadsheet jockey in the world. You need to tell that story really well.

Communicating your passion is something a lot of undergraduates have some challenges with as well. Our biggest challenge is finding people who are committed to the work, and you have to be committed because it can be very frustrating work. It’s not transactional; it’s not bond trading where you get to clear your desk every day. This work stays with you.