Investors are taking the 'slow' approach

Investing locally and small to support local agriculture expected to catch on

By Deborah Nason

Nov 28, 2010 @ 12:01 am (Updated 9:04 am) EST

The slow-food movement has inspired an investment approach known as slow money.

Just as slow-food proponents encourage the development of locally grown food on small-scale farms, slow-money proponents advocate investments in local food systems and small-scale local enterprises that keep investors' money flowing “slowly” within the local economy, instead of speeding through the global financial system.

In the recession- battered farm belt of central Wisconsin, slowing down money by keeping it local could be a matter of survival.

“Clients started mentioning a few years ago that they wanted to invest in rural economic systems and local economies. But very little is available to me through my compliance structure,” said Georgette Frazer, a Marshfield, Wis.-based certified financial planner, accountant and fee-only adviser with the First Affirmative Financial Network LLC.

“The flow of capital is highly concentrated in urban areas, so how do we bring it out to rural econ-omies? The problem now is that the fundamental value of nurturing the soil and rural economies is not yet recognized,” Ms. Frazer said.

But that may be changing.

“Now, with the financial downturn, people have fundamentally lost faith that the large financial institutions have their best interests in mind,” said Don Shaffer, president and chief executive of RSF Social Finance, one of many financial firms developing ways to invest in the slow-money style.

“Until now, most investors hadn't thought about investing more directly into their communities and into sustainable businesses,” he said.

RSF's mission is to support social enterprises; one of its key focus areas is regionally focused sustainable food and agriculture.

GROWING FAST

“Year over year for the past three years, we've seen 30% annual growth in the numbers of people opening accounts,” Mr. Shaffer said. “People are getting more interested in investing in what they can understand.”

Environmental concerns are also spurring an interest in slow money.

“There is a greater interest in climate change and carbon footprints — the “Al Gore effect” — which led to greater awareness of the impact we're having on our food systems,” said Matt Patsky, chief executive of Trillium Asset Management Corp., which focuses exclusively on sustainable and socially conscious investing.

Trillium is collaborating with like-minded entities across the country to develop regional-investment vehicles.

“We're working on a pooled product to allow non-accredited investors to invest in slow-money targets in their local geographic communities, at market returns,” Mr. Patsky said.

A slow-money private-equity venture already exists in the form of Upstream 21, which was created in 2004 by Portfolio 21 Investments to support local economies through its acquired companies.

“After 10 years of negative returns in the stock market, people are starting to question where their money should be,” said Leslie Christian, the firm's chief investment officer.

A more recent private-equity vehicle, the Farmland LP fund, acquires conventional farmland and converts it to high-value organic farmland. Returns come from renting, risk sharing and directly operating the land.

In response to demand, RSF will expand access to its Social Investment Fund notes, introduced in 1984. The notes, which are socially focused instruments similar in form and yield to short-term bank certificates of deposit, are expected to be available on most retail platforms in mid-2011.

In addition, the company is developing higher-return products for mass-market investors, hopefully to be rolled out sometime next year, according to Mr. Shaffer.

Not-for-profit loan funds, such as those funded by RSF notes, are a potential growth area for slow-money investing because they are subject to fewer securities regulations and can be made available to the general public at relatively low investment minimums, he said.

Community Capital Management Inc. recently put together a separately managed client portfolio that invests in bonds “that support community-based food enterprises, facilities for schools and non-profit organizations working to build stronger local food systems, and better, more sustainable food production,” said Jamie Horwitz, senior vice president of marketing for the firm. It also includes these types of bonds within its CRA Qualified Investment Fund mutual fund portfolios.

But even those developing new products in this area think that there is more to be done before this investment niche can grow.

“What I'm waiting for are bonds that will help fund community-supported farms, restaurants serving regional food, and processing for organic foods,” Ms. Frazer said.

In the meantime, the growth in interest in investing “slowly” reflects a change in investor expectations.

“Against the backdrop of lower return expectations, these [slow-money-type] investment vehicles become competitive. You can have more of these low-volume, low-risk, socially important investments in a balanced portfolio if you're not chasing 10% annual returns,” Mr. Shaffer said.

“I see "slow money' as a logical continuation of the [socially conscious] investment market and an important new frontier ... trying to slow down portfolio turnover, investment time horizons, risk and leverage, and corporate time horizons,” said Robert Zevin, president and portfolio manager of Zevin Asset Management Inc.

“I think our clients are more patient and risk-averse than we are. They worry more about turnover than we do,” Mr. Zevin said.

“Producing patient, long-term performance is very appealing to them,” he said.