$235 Million in Values-Aligned Investments: Kataly Announces Our Investment Strategy

What does it look like to design an investment strategy that has divested from Wall Street? At Kataly, we have been asking ourselves this question over the past year as we have finalized the investment strategy for our unrestricted reserve. Now, we are eager to share what this strategy looks like in practice today: $235 million or approximately 90% from our unrestricted reserve in values-aligned investments.

To manage our corporate bond portfolio of $117 million, we are partnering with Xponance, an employee-owned investment firm. They will manage this portfolio through a separately managed account for two years, or until the separately managed account is fully spent out. The corporate bonds have been screened using ESG (environmental, social, and governance) criteria, as well as a more rigorous screening for justice-aligned investments. This includes divesting from surveillance, prisons, the Occupied Territories, and militarization industries.

Tina Byles Williams, founder of Xponance and the firm’s CEO and CIO stated, “We are truly honored to have earned the trust of Kataly Foundation to manage these assets in accordance with their values and objectives. As a diverse firm focused on transforming access to alpha, we are acutely focused on assisting clients in the expression of their portfolio priorities, which include religious, environmental and racial justice, and workplace equity factors.”

Inclusiv, an organization whose mission is to help low- and moderate-income people and communities achieve financial independence through credit unions, will manage our cash deposit portfolio. We have placed two-year certificates of deposit (CDs) with credit unions in the United States and Puerto Rico. Our total cash deposit portfolio is $65 million.

“Opportunities for impact exist in every part of the portfolio. The Kataly Foundation’s investment in Inclusiv’s Impact Deposits Fund demonstrates how to operationalize investment models centered on community needs. This groundbreaking investment enables community development credit unions and cooperativas to provide trusted and affordable financial services in historically redlined and under-resourced communities. Their work fosters an equitable economy in which people who have been systemically excluded benefit from quality housing, better jobs, stronger businesses, and opportunities to build wealth and resiliency to climate change,” said Cathi Kim, Senior Vice President of Inclusiv/Capital and Impact.

Finally, we are exploring a partnership with Next World Assets, a Registered Investment Advisor with expertise in municipal bonds, that can invest $50 million in municipal bonds for us for a minimum of three years. This strategy will focus on buying municipal bonds in predominantly Black communities throughout the U.S. that are focused on improving the material conditions of those communities, and not on overpolicing them.

The last step in the development of our investment strategy will be to bring on a fourth partner to manage a loan portfolio comprised of Native American CDFIs.

We selected these partners as part of our commitment to non-extractive investment strategies, as well as our commitment to collaborating with organizations led by Black and Indigenous people, and all people of color.

“Philanthropic institutions often say they are unable to source diverse investment managers or business partners. While there were bumps in the road and challenges along the way, we were able to ultimately conduct a thorough process to identify values-aligned asset managers,” said Lynne Hoey, Kataly’s Chief Investment Officer. “We hope that the vetting process we engaged in will support other foundations in choosing investment partners who apply a justice lens to their work.”

Part of how we identified these asset managers was through existing networks, attending events, working with our investment advisors, and direct outreach to firms and organizations. Our due diligence process included assessing cultural alignment, as well as technical expertise. One of the challenges we encountered is that because of bias and racism within the financial sector, firms led by people of color have faced systemic barriers that have limited their ability to grow or take on larger mandates. We chose our investment partners because they represent multi-racial organizations that are working together to address the disproportionate allocation of capital.

The commitment of these asset managers to equity and justice allows us to more effectively meet our mission of redistributing wealth to Black, Indigenous, and all communities of color to build political, economic, and cultural power. Our intention is for this investment strategy to ultimately allow us to divest from Wall Street, which is a goal and journey we shared in a series with ImpactAlpha.

We look forward to sharing more about Kataly’s investment strategy and how it continues to evolve and develop over the course of our spend out.