“ The prototype of charity that serves as a model of compassion is the story of the Good Samaritan. When a traveler discovers someone beaten and badly in need of assistance along a public road, he stops and provides assistance. But what happens if each day that he travels the road he finds someone at the very same spot badly beaten and in need of assistance. Compassion requires that he give aid, but eventually compassion requires that he ask the question “Who has responsibility for policing the road.” One is charity. The other is strategic philanthropy. One is working to ameliorate consequences. The other is working to eliminate causes.”
James A. Joseph
President Emeritus, Council on Foundations
Chairman, Louisiana Disaster Recovery Foundation
“ Sound PRIs work in philanthropy the same way that commercial loans and investment capital work in the economy; they add capacity and increase productivity. Their impact is great because they advance philanthropic enterprises that can generate a lot, but not all, of their own steam.”
former Director of Program Evaluation, MacArthur Foundation
The primary purpose of the investment is to accomplish one or more of the charitable, religious, scientific, literary, educational and other exempt purposes described in section 170(c)(2)(B) of the Code;
No significant purpose of the investment is the production of income or the appreciation of property; and
No purpose of the investment is to lobby, support or oppose candidates for public office or to accomplish any of the other political purposes forbidden to private foundations by section 170(c)(2)(D) of the Code.
Investments can include a full range of “asset classes” —debt, equity, real estate, loan guarantees, or deposits—and can be structured as:
Program Related Investments (PRIs) with a concessionary risk-adjusted financial return, which can be counted as part of a foundation’s distribution requirement, or
Mission Related Investments (MRIs) from the endowment that provide sufficient risk-adjusted financial return to fulfill a foundation’s fiduciary responsibility to preserve endowment and avoid “jeopardizing investments.“
Example: The F.B. Heron Foundation invests 25% of its assets to support mission: 7% in PRI + 18% in MRI (in addition to grants).
PRIs promote financial structures and markets that foster sustainable social benefit:
Leverage: Flexible, low-cost, first loss PRI capital encourages financial institutions and other investors to take risks they might otherwise avoid.
Proving Markets: In emerging markets, PRI capital can stimulate new segments, e.g., minority business, organic coffee, affordable housing, sustainable timber, retail financial services for the underbanked.
PRIs are a means for the private sector to drive a social change agenda regardless of shifting political will or quarterly corporate profit expectations.
New York Acquisition Fund , $200 million for bridge loans to finance site acquisition. Offers Loan to Value of up to 130% for nonprofits and 95% for for-profits developers.
Market Creek Plaza , $23.5 million commercial and cultural center built on the former site of a 20-acre abandoned factory in San Diego.
Wilson Historic District, a nonprofit community owned and operated by the Meadows Foundation of Dallas since 1981. Goal was to preserve remaining Victorian structures as well as provide attractive space for numerous, varied nonprofit organizations.
Neighborhood Progress Inc . Founded in 1988, NPI restores Cleveland neighborhoods by providing investment capital and real estate development services to qualified Community Development Corporations (CDCs), along with operating support and capacity building.
Seedco . Founded in 1987, the Structured Employment Economic Development Corporation creates opportunities for low-wage workers and their families by engaging with community partners and anchor institutions to develop, operate and learn from model programs that help people join the workforce and achieve economic self-sufficiency , assist small businesses , and promote asset building for residents and businesses in economically distressed communities.
Bay Area Smart Growth Fund I, LLC, private equity fund formed investing in commercial and residential real estate projects in 46 low- and moderate income neighborhoods.
UrbanAmerica, LP, private equity fund investing in commercial real estate in U.S. low- and moderate-income communities.
Yucaipa Corporate Initiatives Fund I, LP, private equity fund investing in corporate partnerships that locate in, relocate to or expand their operations in U.S. underserved rural and urban communities.
What are the tangible and intangible benefits on PRI for exempt purpose– social return on investment or “ROI”?
Are beneficiaries better served by PRIs plus grants?
Field is still developing impact measurement systems.
Empirical evidence suggests important advantages, demonstrated by growth and effectiveness of organizations that use and recycle PRI funds to solve social problems, as well as increased resources for philanthropy.
“ … .The second lesson of New Orleans is the need to understand when it is appropriate to act independently and when it is best to collaborate. And here I believe that if the philanthropic sector is to serve society well, it must, to whatever extent possible, prepare itself for greater collaboration.
The management guru Peter Drucker spoke several years ago about the emergence of a fourth sector in American society. We tend to highlight three sectors, a public sector driven by the ballot, a private sector driven by the market and a third or independent sector driven by voluntarism and the institutions of civil society. But Drucker pointed to a fourth sector where leaders recognize that the problems of our time are not only complex and interdependent, but of such scope and scale that we often need to form partnerships within sectors and across sectors in order to enhance our impact and effectiveness.”