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The Need for Best Practices in Opportunity Zones Fund Administration

Since its launch in 2018, the Opportunity Zones initiative has existed to revitalize communities by encouraging private-sector investment in distressed areas. But exactly how effective has it been?

Early results have been encouraging: in 2020, a study from the Council of Economic Advisors reported $75 Billion of private investment was made in the first two years of the initiative, with over 500,000 jobs already created as a result, and that it was on track to lift over 1 million people out of poverty.

Despite these promising numbers, the general perception of the initiative has been mixed, with many skeptical that there is enough proof of positive results to warrant continuing the program. Given the momentum that Opportunity Zones have built, with hundreds of funds operating across the country, it would be a shame to let such a transformative economic development tool fail to achieve its potential due to incorrect assessment of its effectiveness.

The fact is that if we want this initiative to continue, we have to prove its effectiveness as both a tool of social change and as a worthwhile investment. Assessing the impact of the program is critical to its survival, and that’s why the industry needs to establish Opportunity Zone best practices now. Stakeholders in the OZ industry have a crucial chance to establish a regimen of standards and best practices to prevent fraud and abuse, guard against harmful misconceptions by reporting impact results, and ensure the initiative accomplishes its intended good.

Doing so won’t just help the communities these projects serve, but will also help the industry survive and differentiate individual OZ funds for a growing population of impact-conscious investors. These same best practices can also reduce compliance and operational risks of all kinds while enabling cost efficiencies for the funds themselves.

In a coming series of posts, we’ll discuss what we see as the optimal best practices for the Opportunity Zone industry, and show how JTC is leading the way in security, transparency, compliance, and measuring social impact.

Establishing transparency and compliance practices in the early days of a fund lays the groundwork for being able to scale operations while keeping up with still-developing tax regulations and reporting requirements. Fund managers may struggle to meet investor demands for transparency into their positions and holdings. Being confronted with an unexpected regulatory inquiry can put pressure on a fund if there is no clear audit trail embedded in their processes.

OZ fund administration starts with recognizing that Opportunity Zones have unique requirements. While it certainly requires traditional private equity fund administration excellence, it also requires additional tax compliance, reporting, and social impact tracking capabilities. To truly embrace best practices, fund managers must recognize that each of these requirements needs to be integrated. Purpose-built technology solutions like those from JTC enable funds to keep an eye on projects at all times.

Following these best practices will ensure investments in Opportunity Zones are evaluated more effectively. From there, informed decisions can be made on adjustments or enhancements to the program so it can ultimately achieve its intended results. Compared to other impact investing initiatives where the private sector has been reluctant to implement comprehensive reporting, the OZ industry has been very supportive. Many recognize that the initiative was created to address one of the most serious challenges our country faces, and that measuring impact is fundamental to its long-term success.

JTC has long been an advocate for strict reporting and compliance standards, including those in the recently-introduced IMPACT Act. We’ve implemented technology-based solutions in the most important areas of OZ fund administration: security, transparency, compliance, and measuring social impact. Fund managers who follow these best practices win in two ways: by protecting themselves against potential compliance risk, and through setting themselves apart with investors by owning superior fund administration capacities as a brand attribute, a potentially critical differentiator in a young industry.

As the market leader in 1031 like-kind exchanges and EB-5 administration, and with proprietary technology and domain expertise in private equity fund administration, JTC is uniquely qualified to set the standard for a best in class, purpose-built solution for the growing OZ market.

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