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Investing for Impact with Program-Related Investments

A report on strategic investing at the Bill & Melinda Gates Foundation.

The Bill & Melinda Gates Foundation, the world’s largest family foundation, is also one of the world’s largest impact investors. Since 2009, the foundation has complemented its grants budget with a substantial allocation for program-related investments (PRIs). In the words of Julie Sunderland, the founding director of Program Related Investments: “While the majority of the foundation’s activities will still be traditional grantmaking, we believe PRIs can be a critical tool to stimulate private-sector innovation, encourage market-driven efficiencies, and attract external capital to support our charitable priorities.”

A PRI (as described more fully below) is a loan, equity investment, or guaranty, made by a foundation in pursuit of its charitable mission rather than to generate income. The recipient can be a nonprofit organization or a for-profit business enterprise. The US Internal Revenue Code treats PRIs similarly to grants. In contrast to ordinary investments from their endowments, foundations do not expect PRIs to produce market-rate returns.

Today, the Gates Foundation has allocated $1.5 billion to fund PRIs, of which it has committed $1 billion across 47 investments. Its PRIs have allowed the foundation to reach beyond the nonprofit sector to draw on the talent, expertise, and innovations offered by the private sector to advance its mission to “help all people lead healthy, productive lives.”

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Program Related Investments: The JFN Edition of the Guide by Mission Investors Exchange

A special JFN edition of the guide to Program Related Investments by Mission Investors Exchange. Comprehensive and practical, the guide aims to give Jewish philanthropists all the information they need to begin making PRIs a part of their philanthropic toolkit.

PRIs are powerful, versatile tools that foundations use to achieve their philanthropic goals alongside traditional grant-making. Like grants, PRIs make inexpensive capital available to non-profit or for-profit enterprises that address social and environmental challenges. Unlike grants, PRIs are expected to be repaid, often with a modest, risk-adjusted rate of return.

By deploying PRIs, foundations can leverage their financial resources and balance sheets more effectively than through grant-making alone. They are particularly useful when grants alone are not enough to bring a solution to scale, or when a time-limited infusion of capital is needed to jumpstart, grow, or sustain a social enterprise, and when that capital can be used to generate new resources. PRIs are often used to stimulate private-sector driven innovation, encourage market-driven efficiencies, and attract external capital to priority initiatives. Once repaid, the money used for a PRI is recycled into new charitable investments. In that sense, a PRI can be viewed as a more efficient use of philanthropic capital.

The guide covers practical topics like types of PRIs, tax considerations, relevant regulations, necessary documents, deal structuring, recommended policies for foundations to adopt in using these tools, and monitoring financial and social impact over time. Real examples and fictional case studies are also provided. It updates and expands a general guide to PRIs by Mission Investors Exchange, supplementing it with sections and materials relevant to Jewish communal philanthropy. That supplemental material was written by Yigal Kerszenbaum, Senior Program Associate at The Rockefeller Foundation.

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