Monday, June 25, 2007

WSJ: A Good Deal Can Matter a Good Deal

Greg Stanton of Wall street without walls; Elyse Cherry also quoted


A Good Deal Can Matter a Good Deal

June 15, 2007; Page W11

"You know something in your life has changed when you go from reading 'Liar's Poker' to 'Pathways Toward Heaven on Earth,'" Gregory Anderson joked last week to an audience at the Yale Club. Mr. Anderson, a managing partner at Alexandra & James Inc., was addressing the semi-annual advisory board meeting of Wall Street Without Walls. And judging by the raucous laughter that came from the investment bankers in the room (some of whom were actually mentioned in the first book, Michael Lewis's account of bond trading in the 1980s), others in attendance also were surprised to find themselves dipping into the latter book, a collection of the religious wit and wisdom of Sir John Templeton.

But as its members will tell you, Wall Street Without Walls has gotten some men and women to do some surprising things. People who may not have a reputation for community-mindedness have been engaging in great work for those less fortunate than themselves. And these bankers and brokers (both retired and active) didn't have to write any big checks or volunteer at a soup kitchen. Instead, they were asked to do what they do best -- make deals.

In 1997, Greg Stanton was 42 years old and working at Drexel Burnham when he had two heart attacks in quick succession. He thought he'd just give up and become a "gentleman farmer," until he got the idea for Wall Street Without Walls at a gathering of major foundations he attended. Originally set up to provide nonprofits with advice from financial experts, the group's focus has shifted. For the past few years, the 80 or so volunteers at WSWW have worked "to connect the traditional institutions and financial products of the capital markets with community-based development organizations engaged in the economic development in low- and moderate-wealth communities."

Today, as the organization's founder and co-chairman, Mr. Stanton is charged with explaining what that means in layman's terms. There are a significant number of community development groups and financial institutions that lend money in high-risk (read: poor) areas, either through business loans or mortgages. They lend money to assisted-living facilities, affordable-housing developments and charter schools, among other institutions. Some of the lenders get their money from private foundations, some from tax dollars and others from a combination of both. The loans often have a high default rate, which means that either the borrower must pay a high rate of interest or the foundations and the taxpayer must assume a lot of the risk.

But what if the high-risk loans could be bundled together? As Mr. Stanton explains, "If you have sufficient data on the loans, you can structure them so an investor will always receive principal and interest, and then they begin to seem like any other for-profit." And private investors will be interested in putting their money into them. Or, as Mr. Stanton is fond of telling people, "If it looks like a duck and walks like a duck, people will invest in it like a duck."

Holding the mortgage to one charter school can be risky. Who knows if the charter will be revoked, teachers will stick with it or students will enroll in sufficient numbers? But buying 30 such mortgages spreads the risk and is a much more sound investment. And now, Wall Street Without Walls is helping to sweeten the deals for potential investors. The group has just helped to launch a company called Community Development Assurance. Nonprofit lenders can pay a small premium so that if their borrowers default on the loans, investors will still be repaid principal and interest for the duration of the loan. In return, CDA will help the investments get a higher bond rating, thus making them more attractive.

So far, WSWW has helped to get about $1.1 billion in private capital to fund these sorts of loans. Their projects have included business loans in New Orleans and mortgages for teachers, police officers and firefighters in Washington, D.C. And what has been required of the volunteers? Typically about six conference calls per deal, and as little as one deal per year. After the deals are made, the bankers are released from service and may even choose to have their own firms (Chase, Deutsche Bank, Morgan Stanley, etc.) invest in some of the projects.

* * *

Elyse Cherry, a member of WSWW's advisory board, recalls the "early days" of the organization. "People were wandering around thinking about what this market needed, what loans could really be bundled." Ms. Cherry, who is the president of Boston Community Capital, a lender in low-income neighborhoods in Massachusetts, says she was initially skeptical that such deals would really work. "It was a long, hard slog, but if this stuff were easy to get to capital markets someone would have done it by now."

Which brings us back to Sir John Templeton, the mutual-fund mogul, whose foundation has just given a little under a million dollars to WSWW to help expand its programs to 500 volunteers and 150 projects annually. Part of the foundation's mission is to support research on the benefits of free enterprise, including how our economic system can provide solutions to poverty. By helping community groups to rely less on public funding and more on private capital, there is no doubt WSWW is fulfilling this idea.

But the foundation has another goal -- helping people find purpose in life, especially in retirement. According to Marta Oliver, one of the foundation's program analysts, Sir John, who is now 91, has told the foundation's employees that he wants "to find ways to encourage people to enjoy their retirement as much as he has, and to be as productive as he has been." Ms. Oliver adds, "There are lots of people looking forward to using their talents in retirement, but it's difficult sometimes to find opportunities."

WSWW could not have found a more enthusiastic leader than Greg Stanton, who seems the perfect embodiment of "purpose." He believes he got "a second chance on life" after his health scares, and he tells me, "My work is my gratitude."

Ms. Riley is the Journal's deputy Taste editor.

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