Introduction to Program-Related Investments (“PRIs”)

Although PRIs are relatively new to The Gambrell Foundation, The Ford foundation originated the concept in 1968. A PRI is money that leaves the foundation’s corpus, counting towards a private foundation’s 5% annual payout requirement in the year made, and goes into the hands of a non-profit or for-profit entity. The primary distinction between a PRI and a grant is that a PRI comes back to the foundation after a predetermined term, increasing a private foundation’s annual payout requirement in the year reimbursed. In other words, a PRI is a recyclable, interest-bearing grant.

The IRS requires that an investment pass the following three basic tests in order to be classified as a PRI:

  1. The primary purpose of the investment is to further the foundation’s charitable mission.
  2. Income generation and capital appreciation are not a meaningful intention of the investment.
    • In other words, would an investor solely engaged in investing for profit make the investment on the same terms? When the answer is no, it means the foundation is accepting higher risk and lower return, thus satisfying this requirement.
  3. The investment can in no way participate in political activities, such as lobbying, campaigning, etc.

Creating, executing and monitoring a PRI requires a team approach comprised of a diverse set of skills, including programmatic, financial and legal. PRIs are customizable and can take various forms, including but not limited to:

  • Interest free or below market rate loan to a non-profit
  • Purchase of promissory note of a non-profit
  • Low interest rate deposit with a bank or other financial institution “linked” to lending for a charitable purpose (often housing or economic development)
  • Loan guarantee or letter of credit to enhance a charitable organization’s creditworthiness in a third-party loan transaction
  • Equity investment in a for-profit entity