Is Impact Investing About to Turbo-Charge the Charter School Movement?

Credit: Ivy Dawned via Flickr (CC BY 2.0)We’ve written before about how one of the biggest hurdles for scaling the charter school movement is building or expanding the actual school facilities. Funders have long stepped in with brick-and-mortar gifts for charters. Walton, in particular, is a big player here, and that foundation recently pledged even more funding for facilities.

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Still, some in the charter movement are frustrated by the slow pace and want to scale more charters even faster via impact investing.

One charter advocate who has felt stymied is tennis star Andre Agassi, who opened a charter school in Las Vegas in 2001. Focusing in on the challenges related to starting new schools, Agassi teamed up with California financier Bobby Turner to capitalize over $500 million (raised from investors such as Bank of America and Citigroup) worth of educational facilities over the next few years. The goal of the Turner-Agassi Charter School Facilities Fund is to develop 70 to 80 schools on 45 to 50 campuses for the top charter schools in the nation over the next few years. By September 2016, they will have opened 64 schools and aim for an additional 100 or more over the next four years, in part using loans to finance some deals. Going even further, Turner and Agassi hope to raise a second private-equity real estate fund (supporting by Merrill Lynch) of $400 million to build 100 more charters in areas where they believe education services are underperforming.

As the number of students in charter schools grows to over 3 million in 2016, according to the National Alliance for Public Charter Schools, charter building efforts funded by impact investors are growing along with the market. The reality is that with impact investing, the pace of development can be accelerated beyond what philanthropy has been able to provide for charters. Some in the charter movement leading this new wave of investment believe they can address the problem of educational inequity better and faster with private investment as their engine.

This trend has spawned a growing niche segment in real estate in which eager investors are enticed by the typical three- to four-year horizon over which charter schools become profitable. Such forms of private financing gives schools a reasonable runway, at the end of which the school operators attempt to buy the facility through capital raised in the municipal bond market or through bank financing; the Turner-Agassi fund and others call this "creating a bridge to ownership" for charter school operators. Some other players in the charter school impact investing space are Northstar Commercial Partners out of Denver, EPR Properties out of Kansas City, Missouri, and B.C. Ziegler & Co. in Chicago.

Impact investing, of course, is red-hot right now throughout the social sector. But it holds particular promise in the charter school space, given the infrastructure bottleneck that exists, even as new charter school entrepreneurs emerge and thousands of families register for charter waitlists all over the country. The fact that so many donors from Wall Street back charters would also seem to bode well for efforts to find major private capital to scale such schools. Bill Ackman, the hedge funder and philanthropist, is one such donor who has put financing behind charter impact investments. 

A final point: This trend is a not-so-implicit critique of the imits of traditional philanthropy when it comes to charters. Agassi’s partner Bobby Turner sums up the perspective by saying, “As a philanthropist, I struggled at making meaningful change. I had given millions of dollars away of my time and my energy and my money, only to put Band-Aids on treating some of society’s most daunting challenges. I realized in many instances, I was treating, not curing. And I was actually creating and funding a legacy of dependency. If you want to treat a problem, then philanthropy is fine. But if you want to cure, really cure, you’ve got to harness market forces to create sustainable solutions that are scalable.”

One obvious pitfall with the new charter impact investing is that it could fuel the perception or reality that private sector players see charters as a path to profit, regardless of the results they actually deliver for kids. Significant investment capital could indeed scale this movement more rapidly, but this development could create new problems for charter advocates.