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Endowments and Foundations

Kresge Foundation commits $22 million to backstop opportunity zone funds

The Kresge Foundation, Troy, Mich., provided $22 million in guarantees against potential losses by opportunity zone funds managed by Arctaris Impact and Community Capital Management, foundation spokeswoman Krista Jahnke said.

The foundation, through its $3.8 billion endowment, provided the guarantee to "reduce the risk profile for other investors," Ms. Jahnke said. The foundation is guaranteeing $15 million for the Arctaris fund, which seeks to raise $500 million, and $7 million for the CCM fund, which seeks to raise $300 million.

Under the provisions of the Investing in Opportunity Act, part of the Tax Cuts and Jobs Act enacted in December 2017, investors can reduce, defer and exempt capital gains liabilities through Dec. 31, 2026, if they reinvest $100,000 or more within 180 days of a sale in a qualified fund for a minimum of five years. Over 8,700 low-income communities have been designated as qualified opportunity zones in 50 states, the District of Columbia and five U.S. territories, according to the IRS.

Despite ongoing regulatory uncertainty, a Kresge Foundation news release said the two managers have agreed to covenants that "prioritize the development of affordable housing units and prevent displacement; invest in the creation of living wage jobs; and prohibit non-productive investments such as those into self-storage facilities" and "managers will also form community advisory boards similar to those required in the New Markets Tax Credit Program."

Arctaris and CCM were selected following a call for letters of inquiry conducted in 2018 by the Kresge Foundation in partnership with the Rockefeller Foundation.

"The level of transparency and reporting Arctaris and CCM have agreed to have set the standard for what investors should ask for before committing dollars to Opportunity Zone Funds," said Kimberlee Cornett, managing director of the foundation's social investment practice and its $350 million impact investing pool, in the news release. "These firms are already established leaders in the impact investing space, and we're thrilled they are taking up a leadership position in this new market. Our desire is to signal strong public endorsement of these funds to potential investors who care about getting it right and acting with the best interests of low-income communities in mind."