Impact Investing And Employee Ownership
With income inequality in the United States at record high levels, employee ownership is increasingly being lauded as a potential solution to spreading wealth more broadly. Most recently, research from the National Center for Employee Ownership released in May shows that employee owners have a household net worth that is 92 percent higher than non-employee owners. They also make 33 percent higher wages, and are far less likely to be laid off.
But employee ownership requires new investment in order to get to scale. A new report by Mary Ann Beyster, president and trustee of the Foundation for Enterprise Development (FED), published by the Fifty by Fifty initiative of The Democracy Collaborative, examines the investing landscape for potential opportunities in employee ownership. The report, Impact Investing and Employee Ownership, released today, reports on the results from six months of research showing that the opportunities for impact investors to support employee ownership are limited, but that an investing infrastructure is beginning to emerge across asset classes. Among the key leading opportunities for investment are community development financial institutions (CDFIs), private equity funds, and one mutual fund.
“Employee-owned companies ground wealth locally, stabilize communities, and offer impact investors a direct way to benefit their own communities,” Ms. Beyster said. “We found that what is needed is more awareness of the benefits of employee ownership and more attention to building the needed investment infrastructure.”
Among the leading investment opportunities highlighted in the report are:
CDFIs: Among roughly 800 community development financial institutions nationwide, the study found six that focus on financing employee ownership: Capital Impact Partners in Washington, DC; the Commonwealth Revolving Loan Fund run by the Ohio Employee Ownership Center in Kent, OH; Cooperative Fund of New England, which loans to cooperatives throughout New England; Local Enterprise Assistance Fund in Brookline, MA; Shared Capital Cooperative in Minneapolis; and The Working World in New York City.
Private equity: The study also found two private equity funds focused on financing mid-market firms (revenues of $15 million up to $350 million) that are employee-owned or are transitioning into employee ownership. These two funds are Mosaic Capital Partners in Charlotte, NC, which has a $165 million fund; and Long Point Capital, with offices in Royal Oak, MI, and New York City, which has $550 million assets under management. Particularly noteworthy about these two investment options – appropriate primarily for institutional and high net worth investors – are that market-rate private equity returns are likely available. A similar fund is in formation by American Working Capital, headquartered in Chicago.
Mutual funds: Among mutual funds – open to even small investors – no option with an explicit focus on employee ownership was found. But the study did discover one fund, Parnassus Endeavor Fund, which invests in 26 companies identified as great places to work, where Beyster’s research found that all of the companies on the list have some kind of broad-based employee ownership.The fund has returned 32.46 percent over the past year and 15.39 percent over the past three years. It was named in 2016 by US News and World Report as the No. 2 fund among Large Growth stocks, in its annual ranking of mutual funds.
Banks: There is one bank dedicated to supporting cooperatives of all kinds, which has lent to worker-owned cooperatives and employee stock ownership plan companies for decades; it is National Cooperative Bank. Investors can open a variety of accounts with this bank, with FDIC insurance; these include checking, savings, IRAs, and certificates of deposits.
Read the full report now: http://www.fiftybyfifty.org/impactinvesting