Program Related Investments

We use the term 'Program Related Investments' (PRIs) consistant with the definition provided in the Tax Reform Act of 1969 section 4944.

PRIs are awarded to charitable organizations or commercial ventures providing charitable goods or services. PRIs employ financing methods such as loans, loan guarantees, lines of credit, linked deposits, or equity investments.

PRIs were created under the Tax Reform Act of 1969 which cautioned foundations against making jeopardizing investments — that is, any investment that could imperil a foundation's ability to carry out its charitable activities. Under Section 4944, private foundations are allowed to make 'program-related investments' if:

  • The primary purpose of the investment is to advance the foundation's charitable objectives;
  • Neither the production of income nor appreciation of property is the primary purpose; and
  • The funds cannot be used directly or indirectly to lobby or for political purposes.

It should be noted that PRIs can result in a market rate of return or above as long as they comply with the IRS rules.

We believe there is demand and need for 'social' capital (i.e., capital which expects below market returns), particularly for social entrepreneurs and social enterprises. We also believe that foundations have a fiduciary responsibility to allocate part of their endowment or yearly pay-out for this purpose. For these types of investments we are willing to accept a discount of up to 500 basis points compared to similar investments made without regard to mission or program considerations. In order to reach scale, social enterprises need to be partly market based and able to tap into the main stream capital markets. Investment opportunities which exceed the 500 basis point rule are treated as exceptions. PRIs are made only within our Foundation.

Currently, we plan on using 20 % of our annual pay-out per year (1% of our annual 5% minimum charitable payout) to invest in PRIs until 2010. At that time, we will evaluate using the corpus of our Foundation to invest in PRIs.