Growing up in Los Angeles, my parents instilled in me the idea of education as a catapult to pursue whatever career I wanted. We are a family of first generation immigrants who navigated both language and cultural hurdles to bring this idea to fruition. Fruition for me has been working in the impact investing space where I apply a social lens to credit underwriting. The past few weeks have been a stark reminder of how circumstantial my family’s journey was and the need to ensure opportunity for all.
Charter School Controversy
In October 2018, I joined Equitable Facilities Fund (EFF). EFF is a start-up, non-profit social impact fund. The fund is dedicated to providing low-cost loans for high-performing charter schools across the U.S. It was immediately clear to me that the charter school sector incited a reaction from most individuals. Some said that charter schools caused traditional public schools to be stripped of funding and as a result traditional schools experienced hampered performance. Others said some traditional public schools are not providing a high quality education to students and charters are a means to create an alternative environment for students’ success.
Navigating Through The Noise
I navigate through the noise to identify charter school borrowers that not only provide a high quality public education to its students. The charter schools should also serve disadvantaged communities.
My role at EFF is to take the time to dig into a charter school. I look at enrollment, academic performance, student demographics, governance, student and teacher retention, and regulatory environment, on top of financial evaluation and stress testing. As part of our extensive diligence and monitoring processes, we assess English Language Arts and Math proficiency rates. These rates are considered relative to the host District and State, at every grade level and for certain student subgroups. Subgroups that we consider include those receiving free and reduced lunch, minority, economically disadvantaged. Looking at these subgroups allow us to see if disadvantaged communities are being assisted.
EFF has an impressive ability to structure credits for an array of charter schools that have a positive impact on their community. Walking through school campuses, meeting with school leaders, and seeing how families engage with school administration and teachers has confirmed to me how crucial our charter school borrowers are. My interaction with our charter school communities also confirms that charter schools help ensure opportunity for all.
An additional parameter my team abides to is generating a charter school loan portfolio that maintains an investment grade rating from a credit rating agency. By pricing our bonds at investment-grade rates, EFF may then price loans to borrowers at more competitive rates.
EnsurE Opportunity For All
When I think of the best ways to address income inequality and racism, I believe a high quality public education has the power to enact change. At EFF, we provide low-cost loans so that charter schools use less money to pay for facility expenses. In turn, EFF taps into the capital markets to sustain our program. In October 2019, the Equitable School Revolving Fund issued ~$112 million in bonds that was collateralized by the EFF loan portfolio. We are currently preparing for our second bond issuance. This second issuance will ensure our charter school borrowers continue to serve their communities and put their savings back in the classroom.
ESRF currently does not have offerings for retail investors (but it is something to strive for). However, there are other ways that individual investor can get involved in the charter school space. Investing in the Reinvestment Fund, purchasing an Impact Note from LIIF, and donating to the National Alliance for Charter Schools are all options to consider.