Treasurers weigh investments, deposits and transactions that will benefit Black communities.
Treasury teams within the NeuGroup Network are playing a key role at companies that are stepping up efforts to support Black communities and Black-owned financial institutions.
- NeuGroup members discussed their initiatives and options at a recent Virtual Interactive Session (VIS) that followed a webinar in which Netflix detailed its commitment to allocate 2% of cash holdings—initially up to $100 million—into financial institutions and organizations that directly support Black communities in the US.
- Director of treasury Shannon Alwyn told VIS participants that Netflix approached this project—an idea from someone in HR which treasury executed—by asking, “How can we make a difference in the normal course of business—how to do something without really doing anything—to make this more than a moment?”
- Part of the answer to that question involved moving a portion of non-operating cash from one set of banking partners to other financial institutions.
The Netflix plan. Netflix is taking a first step by putting $35 million into two vehicles:
- $25 million will be managed by the Local Initiatives Support Corporation (LISC), which will invest in Black financial institutions serving low- and moderate-income communities and Black community development corporations.
- $10 million will go to Hope Credit Union in the form of a so-called transformational deposit to fuel economic opportunity in the South. This is a two-year CD with a 30-day call option in case Netflix needs the liquidity.
Big Picture. In general terms, companies looking to make an impact have three pillars to consider:
- Depositing cash into banks that directly serve Black communities.
- Using Black-owned institutions for financial transactions such as bond issues or stock buybacks.
- Direct investment of debt, equity or contributions in kind (e.g., technology, training and building housing).
There are obstacles to making investments that benefit communities. Investment policy constraints are among the biggest.
- Most firms need peer benchmarks to ok carve-outs for depositing significant amounts of excess cash with smaller institutions and to approve equity investments that are said to have much more of a multiplier effect than loans financed by bank deposits.
Inspired by Netflix. A treasurer who attended the Netflix webinar and the NeuGroup VIS said his company, inspired in part by Netflix, is now looking to support Black-owned community development financial institutions (CDFIs) via options that include:
- Making deposits directly into minority depository institutions (MDIs) that serve Black communities. This requires due diligence, partly because of the relatively small asset size of many Black-owned banks.
- Using an intermediary similar to LISC that can help spread the company’s investment across a bigger group of Black-owned MDIs. “That’s what everyone is grappling with—trying to get adequate scale and diversification and some level of diligence,” the treasurer said.
Other paths to progress. The treasurer is also looking into options discussed by other companies who spoke at the VIS. They include:
- A structured fund similar to one described by a member from a large technology company.
- That tech company also uses the Certificate of Deposit Account Registry Service (CDARS) with a CDFI in New Orleans.
- And the company makes use of the Insured Cash Sweep (ICS) service that involves hundreds of institutions.
- A separately managed account (SMA) used by another company. The account is managed by RBC’s Access Capital, which helps financial institutions comply with the Community Reinvestment Act.
- The SMA’s fixed-income investments include highly-rated issues from GSEs that support single-family loans and small businesses. The treasurer exploring his options called this “an elegant solution.”
Investment policy changes. The treasurer said it’s highly likely his company will need to amend its investment policy to accommodate whatever decisions senior management ultimately make. That will require approval by the CFO; the finance committee and the board will be notified.
- During the Netflix webinar, Ms. Alwyn said, “We actually did have to get an exception to our investment policy for a certain portion of our cash in order to be able to do this. Because it is honestly taking on a quite a different risk profile than we’re used to. We decided that we need to take on a little bit more risk if we want to create change.”
Advice for peers. Ms. Alwyn said the company had to “carve out a specific portion” of its non-operating cash to devote to this initiative and “we kept that small.” She suggested that other treasury teams contemplating similar moves may want to think about:
- Ratings from external agencies.
- Duration requirements.
- What size bank you’re willing to do business with.
- “Getting comfortable with what level of risk you’re willing to take on as a company.”
