In today’s financial climate, high-net-worth (HNW) investors are looking for more than just returns. They want to make a difference. The question many are asking: Can fixed income, traditionally a conservative, performance-driven allocation, be a source of purpose? The answer is yes, through impact investing strategies that align fixed income with your values.
HNW investors can reimagine fixed income as a powerful tool for impact investments, especially through Community Development Financial Institutions (CDFIs). It’s about preserving capital while creating real-world change.
Investing involves risk, including the possible loss of principal. There is no guarantee that any investment strategy will be successful or that investment objectives will be met. Investors should carefully consider their risk tolerance, investment goals, and financial situation before making any investment. Past performance is not indicative of future results.
Why Fixed Income Deserves a Fresh Look
Traditionally Conservative, Now Purpose-Driven
Fixed income has long been the backbone of portfolio stability. It’s where capital is preserved with the potential for generating steady income. But increasingly, HNW investors are recognizing this segment as an untapped opportunity for meaningful impact.
A 2023 Morgan Stanley report found that 77% of high-net-worth individuals are interested in sustainable investing, yet fixed income rarely makes the cut in these allocations (source: Morgan Stanley).
What Is Impact Investing?
Impact investing refers to allocating capital to generate positive, measurable social and environmental outcomes alongside investing for financial returns. It’s not philanthropy, it’s strategic. And when applied to fixed income, it can support initiatives like:
- Expanding access to affordable housing
- Funding underrepresented entrepreneurs’ businesses
- Strengthening climate resilience in underinvested communities
- Building local economic infrastructure
These outcomes are achieved through impact investments in vehicles such as CDFI loan funds, where your capital works in underserved markets that need it most.
How Fixed Income Powers Impact Investments
Enter: Community Development Financial Institutions (CDFIs)
CDFIs are mission-driven lenders that provide capital to historically underbanked populations. When investors allocate to CDFI-linked fixed-income funds, their dollars are deployed into real projects, like funding a first-generation entrepreneur’s bakery or revitalizing a blighted housing block.
These impact investments typically take the form of:
- Community Investment Notes
- Private Fixed-Income Funds
- Separately Managed Accounts (SMAs)
- CDFI Loan Fund Allocations
One example is CNote’s Flagship Fund*, which allows investors to make diversified impact investments in vetted CDFI loan funds across the country. The fund prioritizes helping small businesses, underserved communities, and affordable housing while offering a potential competitive fixed-income return profile.
The Benefits of Fixed Income Impact Investing
1. Preserve Capital with Purpose
CDFI loan funds have historically maintained strong credit quality. Community banks, a key component of the community finance ecosystem, have consistently demonstrated lower net charge-off rates than their larger counterparts. Historically, community banks have reported net charge-off rates of just 0.37%, compared to 0.89% for non-community banks. As of June 2024, those rates were 0.14% for community banks, 0.75% for credit unions, and 0.78% for non-community banks (source: From Myths to Opportunity). That makes them an attractive option for HNW investors seeking low-risk impact investments.
2. Diversify with Low Correlation
Impact-focused fixed income often has low correlation to public markets, providing a unique form of diversification in volatile environments.
3. Create Local and Measurable Impact
Your dollars aren’t just working for you; they’re working for others. Through fixed income impact investing, you can:
- Track metrics like jobs created, homes built, and businesses funded
- Support communities where your employees, customers, or family live
- Align your portfolio with causes that mean the most to you
Is This Right for You?
If you’re a high-net-worth individual seeking to introduce purpose into your fixed income allocation, then impact investing through CDFI-backed vehicles may be ideal. Whether you want to:
- Support financial equity
- Uplift rural and underserved communities
- Align with next-gen family office values
- Or simply know where your money is working
…impact-focused fixed income offers a compelling, values-aligned solution.
Final Thoughts
Fixed income doesn’t have to be purely about preservation. It can also be about progress. By incorporating impact investments into this traditionally conservative allocation, HNW investors can unlock both sustainable investing and significance in their portfolios.
Purpose and performance are not mutually exclusive. When it comes to impact investing, they often reinforce each other.
Disclosure: All information contained herein is for informational purposes and should not be construed as investment advice. It does not constitute an offer, solicitation or recommendation to purchase any security, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Returns are not guaranteed. Investing involves risk, including loss of principal. Consult with a financial adviser or investment professional to determine what investment strategy makes sense for you. CNote is not a registered investment advisor with the Securities and Exchange Commission (SEC) nor a broker-dealer authorized by the Financial Industry Regulatory Authority (FINRA). CNote offers securities consisting of various promissory notes under Regulations A and D of the Securities Act of 1933, as amended. Neither the SEC nor any state securities regulator has passed upon or endorsed the merits of any investment in CNote’s offerings.
*Learn more about CNote’s Flagship Fund here.
