Program Related Investments
A Program Related Investment (PRI) is a way that family foundations can use to leverage their philanthropic dollars. Unlike grants, however, foundations get a return on their investment, through either repayment or return on equity. Also called “Mission Driven Financing”
Program-related investments are alternatives to outright grants. Some foundations provide low interest loans to charities that must be repaid and therefore are available for future grantmaking.
At AEF, we encourage a level of donor creativity not typically available in other donor advised fund programs. An example of this creative approach to family philanthropy is the use of assets in a Donor Advised Fund to fund a charitable cause where commercial funding sources are either not available to the charity or not available at attractive terms. In a Program related investments, the donor recommends an investment from his or her Donor Advised Fund in the charity with the understanding that the investment may be recovered within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, i.e. loan, loan guarantees, etc.
Case Study Program Related Investment
The Jamisons watched their church struggle in keeping up with monthly mortgage payments on the old church while the new church was being built.
The Solution
The Jamisons wanted to help the church manage their finances until the old church was sold. To accomplish this, they recommended AEF make a Program-Related Investment to the church under the terms of a loan agreement that provides for the church to make regular quarterly payments of principal and interest, well below the current adjustable rate and more within the church’s means.
This arrangement will enable the church to repay the loan to the Jamison’s Donor Advised Fund in 10 years. At that point, the Jamisons intend to reward the church for exercising fiscal responsibility by making a grant distribution to the church for the amount of interest paid over the course of the loan. Every one wins: the church gets the free use of the money the earns respect for exercising fiscal responsibility and the Jamisons’ Donor Advised Fund gets its “investment” in the church back.
Program-related investments often take one of the following forms:
–at-the-market, below-market loan (most common), or interest-free loan.
–loan guaranty or letter of credit.
–equity investment.
–low-interest-rate deposit with a bank or other financial institution linked to line of credit lending vehicle for charitable or other exempt purposes.
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