Addressing Diversity, Equity, and Inclusion Outside of Public Equity Portfolios

Aperio’s DEI Journey
May 27, 2021

CDFIs offer investors fixed-income and cash alternatives with a side of impact.

Over the last year, Aperio has noted an increased interest in clients wanting to align their investments with their values around diversity, equity, and inclusion (DEI) and racial justice issues. Much of the data tied to DEI and racial justice issues is based on voluntary disclosures from companies, resulting in limitations as to what can be achieved from an impact perspective in a public equity portfolio. While we can partially address these themes by incorporating data around diversity policies and workforce and board diversity disclosures, or by excluding undesirable companies, diversity issues often overlap (see blog: There Is More to Diversity Than Initially Meets the Eye) with other issues, such as affordable housing, access to capital, and environmental justice—topics that are harder to address through public equity portfolios.

As clients are increasingly interested in investing in the kind of world they want to live in, it has become clearer that investors can’t improve the world through public equities alone. Philanthropy offers an avenue for individuals and organizations to address these types of issues in a more granular and targeted way, but it comes at the expense of forfeiting financial returns. More recently, however, opportunities for impact around issues of DEI and racial justice in other asset classes have been expanding, providing interesting new investment solutions and changing the way socially minded individuals and institutions think about values alignment in their fixed-income and cash allocations.

Community development financial institutions (CDFIs) are private financial institutions that catalyze economic growth by providing loans and other access to capital for affordable housing initiatives and minority-owned businesses, among other opportunities, thereby creating and accelerating opportunities for marginalized groups that have traditionally not been supported by the conventional banking system. Created in 1973 in Chicago,1 CDFIs now number more than 1,100, operating across all 50 states. For investors looking to expand their impact, CDFIs, in their various forms, offer a multitude of opportunities. Historically, though, investing in CDFIs has been challenging due to the lack of a centralized platform that easily provides investors access to the thousand CDFIs across the country.

As a result, over the last few years, a new group of intermediaries, companies like CNote and StoneCastle, have emerged. These intermediaries partner with CDFIs across the country and provide platforms to connect the community development organizations in need of capital with investors looking for tangible impact and returns similar to those provided by traditional fixed-income or cash investments. As access has become easier, demand to invest in alignment with values has only increased the size of this market. According to the Opportunity Finance Network, CDFIs have grown into a $220+ billion industry, and their borrowers are “84% low income, 60% people of color, 50% women, and 28% rural.”2 Despite existing for nearly 50 years, CDFIs are just now becoming more accessible thanks to these platform companies marrying technology with societal impact.

A key benefit of these platforms is the option for values-focused investors to customize their impact around geographies and themes that matter to them. Danielle Burns, Vice President of Business Development at CNote, explains: “Platforms […] leverage technology to give clients the ability to customize their impact. For example, if an advisor has a client who says, ‘I want to invest in the New York tristate area, and I specifically want to focus on affordable housing and gender equity,’ we can help them with that.” In addition to presenting targeted values-alignment opportunities, these platforms offer a variety of investment products with a range of yields, liquidity, and minimum investment requirements, providing values-aligned alternatives to more traditional fixed-income and cash product offerings.

This intersection of technology platforms with values, impact, and financial returns provides investors with increased ease of access to CDFIs and a more impactful way to address DEI and racial justice issues. These solutions offer values-oriented investors additional tools to reflect themes in their fixed-income and cash allocations, thereby aligning more of their portfolios—not just the public equities piece—with the issues and causes that matter most to them.

Additional Resources: For those looking to learn more about how CDFIs work and the opportunity for investing with impact, check out:

Disclaimer: Aperio is not endorsing the use of CNote or StoneCastle as necessarily appropriate for its clients as client cash needs may differ and each investment decision for a client must be considered individually.

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1 See the Opportunity Finance Network’s industry history at
2 According to Opportunity Finance Network. See


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