Program-Related Investing Skills and Strategies for New PRI Funders

Program-related investments are loans and equity investments that foundations provide at favorable rates to support activities that have a direct charitable purpose. Frequently referred to as PRIs, they expand the resources from foundations - and, in the right circumstances, can be even more effective than grants. Any foundation can make PRIs, yet most shy away from them. In this guide, experienced PRI makers walk through the process, offering practical advice at each step - from explaining the concept to your board to structuring and closing your first deal.

Underwriting for this guide was provided by the Ford Foundation and The John D. and Catherine T. MacArthur Foundation.

Highlights

• Skills for getting started
• Making the first deal
• Lessons learned by PRI makers

What's in the Guide?

• What Is a PRI? Program-related investments can be valuable tools for foundations, applicable in any field where below-market loans or other investments can advance charitable objectives.
• Deciding to Make PRIs: Putting the Pieces in Place: Before making its first PRI, a foundation should do a few basic things: assemble the necessary financial and legal skills, get its trustees on board with the idea, and locate a likely deal or two.
• How Three Foundations Got Their Feet Wet with PRIs: There's more than one way to get into the PRI pond. Here are three approaches: jumping into a full-fledged commitment to PRIs, wading in slowly while developing skills and policies as needed, or getting thrown in by circumstance.
• Making and Structuring Deals: PRI funders typically follow some basic steps as they analyze a potential deal, conduct due diligence, and establish its terms.
• PRIs in the Big Picture: Effective PRI makers tend to think strategically about how program-related investing can stretch a foundation's resources and expand their own skills as grantmakers.

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Resources for PRI Funders Brody Weiser Burns. Maintained by a consulting firm specializing in PRIs, this website offers useful case studies and publications on various aspects of PRI making. Matching Program Strategy and PRI Cost, for example, gives sound advice on assessing and managing program and financial risks. Read more

Deciding to Make PRIs: Getting the Board on Board Get the frame right — the trick, said one foundation president, is to introduce the idea without being didactic. Start off with some informal education by asking trustees whether or not they have heard of PRIs. Read more

Opportunities for Smaller Foundations A handful of large foundations have dominated the PRI field to date, yet small foundations may be poised to make major contributions. Read more

1. Look inside the foundation.
2. Train staff as investors.

Deciding to Make PRIs: Skills and Staffing Required PRI making requires three sets of skills: programmatic, financial, and legal. Foundations structure those functions somewhat differently, depending on their size, strategy, and internal capacities. Read more

Deciding to Make PRIs: Introduction Yet, because PRIs are also financial investments, they require skills not necessarily demanded by straight grantmaking. Read more

PRIs: Legal Definition PRIs are the historical product of the Tax Reform Act of 1969, which, among other things, imposes fines on foundations if they make “jeopardizing investments” — that is, any investment (including any loan) that could imperil the foundation’s ability to carry out its charitable activities. Program-related investments are the exception to the rule. Under Section 4944, private foundations are allowed to make “program-related investments” that meet three criteria: Read more

Simply Put: What is a PRI? PRIs are investments made by foundations in support of charitable purposes, with the explicit understanding that those investments will earn below-market returns, adjusted for risk and mission. The vast majority of PRIs are loans or loan guarantees, and although they are not grants, they count toward a foundation’s payout requirement in the year a disbursement is made. Read more

Getting Your Feet Wet Three Approaches The best way to learn to make PRIs is by doing it. As the executive director of one new PRI-making foundation put it, "It comes from experience, and the only way you can get experience is to make some investments." PRI makers seem to have gotten into the PRI pond in one of three ways: they jumped in, they waded in, or they were thrown in by circumstance. Read more