California to Help Diverse Investment Managers Get Insurers' Attention

Ricardo Lara (Credit: California Department of Insurance)

California Insurance Commissioner Ricardo Lara is trying to reduce wealth inequality in the state by updating the state's community investment matchmaking program.

Lara wants to help black-owned investment firms, and firms owned by other types of people who may be underrepresented in the world of investment banking, such as women, and military veterans, get insurance company money for affordable housing projects and environmental projects in California.

Lara hopes to make that happen by adding an Invest in Our Diverse Communities Initiative to the California Organized Investment Network (COIN) program.

Resources

The California Organized Investment Network website is available here.
An article about the Global Impact Investing Network's latest survey is available here.

The California Department of Insurance started the COIN program in 1996, to help channel some of U.S. insurers' $7 trillion in assets into projects that could help low-income people or communities, rural communities, and other capital-starved people and communities in California.

The COIN program promotes projects that will help the environment, or help low-income or moderate-income people or communities, through an Impact Investment Marketplace website. The listed projects must "provide safe, sound and solvent investments offering an acceptable risk-adjusted financial return for that asset class," according to the program website.

Managers of the new diverse communities initiative will look for capital-ready projects that meet COIN requirements, and that are owned and managed by what California classifies as "diverse firms."

California will classify an investment firm as being diverse if it's owned by someone who is a woman, a military veteran, LGBTQ+, Latinx, Asian Pacific Islander, Native American, or black, department officials say in the initiative announcement.

The COIN program will highlight the diverse communities projects on the Impact Investment Marketplace site, officials say.

"The COVID-19 pandemic has exposed the inequality in wealth that continues to persist in communities across our state, which I believe the insurance industry can help to tackle through socially responsible investments," Lara said in a comment included in the initiative announcement.

The diverse communities initiative can help insurers support projects that will improve California residents' way of life, and provide homes for people who need homes, Lara said.

Some investment specialists argue that managing a portfolio of investments to support a pension or insurance business is so important, and so difficult, that simply using legal, ethical and prudent methods to generate the highest possible rate of return is the most socially responsible thing the portfolio manager can do.

The U.S. Department of Labor, for example, recently proposed new restrictions on investment managers' ability to add socially conscious funds to 401(k) plan menus, because of worries that efforts to be socially conscious could interfere with efforts to maximize returns.

But state and federal have been running socially conscious investment programs for years.

From 1907 through 1963, Texas tried to encourage life insurers to contribute to the development of Texas by requiring out-of-state life insurers selling coverage in the state to invest 75% of their Texas reserves in Texas securities.

The Global Impact Investing Network, an organization that supports socially conscious investment projects, says 88% of the participants in its latest annual survey reported that they have met or exceeded their financial return expectations.

— Read California: Insurers Show off Their Good Works, on ThinkAdvisor.

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