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Foundations Not Making Many Program-Related Investments

By The NonProfit Times - May 21, 2013

Despite growing interest and rising awareness, foundations have generally been slow to adopt program-related investments (PRIs) as vehicles for charitable purposes. During the past two decades, less than one percent of U.S. foundations made PRIs each year, according to a new report from the Indiana University Lilly Family School of Philanthropy.

Foundations are devoting more dollars to program-related investments (PRI). Between 1990 and 2009, the total foundations invested in PRIs jumped from $139 million to $701 million. In 2000, the average investment was $666,000. It jumped to more than $1.5 million in 2009. The median investment went from approximately $145,000 in 2000 to more than $305,000 in 2009.

The number of PRIs made per year more than doubled between the mid-90s and mid-2000s, according to the report, from fewer than 200 to more than 400. Despite the increases in dollars and number of investments, the study found that between 2008 and 2010, fewer foundations made PRIs. The number of PRIs dropped from 125 in 2007 to 78 in 2008, climbed to 97 in 2009 and again dropped in 2010 to 64.

These are some results from a study by the Indiana University Lilly Family School of Philanthropy called “Leveraging the Power of Foundations: An Analysis of Program-Related Investing.” PRIs are investments that support charitable activities and provide a return on that investment. Funds for PRIs can come from investment assets or program assets.

Program-related investments are tools through which foundations can go beyond grant making to achieve philanthropic goals. PRIs, as a result of the Tax Reform Act of 1969, originally emerged as a formal philanthropic activity that allows foundations to bring low-cost capital to disadvantaged communities, according to the report. The law (Internal Revenue Code 4944) prohibits private foundations from making “a jeopardizing investment” that could undermine their ability to support any of their charitable purposes. However, the section also carves out PRIs as an exception to the jeopardizing investment rule. Under IRC § 4944(c), private foundations are permitted to make program-related investments, provided they meet certain criteria, according to the report.

Between 2000 and 2010, most PRIs were made in the areas of housing, community development and education, by a large margin. Those areas added up to 68.2 percent of PRI dollars and 66.5 percent of total number of PRIs. About 60 percent of the PRIs made in that period were loans.

Foundations with assets of $200 million or more provided 59 percent of PRI dollars between 2000 and 2010, while they represented only 22 percent of foundations in the datasets making PRIs. About 30 percent of PRI making organizations are located in New York and California.

The number of foundations making program-related investment is limited. The year 2004 saw the largest number of foundations making PRIs, but that number was only 137. The total amount of PRIs in 2004 was $312.6 million, from 421 PRIs. The highest dollar amount was 2009, at $701 million, from 97 organizations making 244 PRIs.

The Ford Foundation, based in New York City, devoted the largest number of dollars to PRIs between 2000 and 2010, at $302 million. The Bodner Family Foundation, also in New York City, made 177 PRIs between 2000 and 2010, the highest number of investments.

The Nature Conservancy in Arlington, Va., was the top domestic recipient of PRI dollars, receiving $94.7 million between 2000 and 2010, while the government of Armenia received $22.5 million worth of PRIs in the same period, making it the largest foreign recipient.

The study is mostly based on an analysis of the Foundation Center’s PRI database from 2000 to 2010 (2010 data is incomplete), with supplemental datasets from 1990 to 2000, and the IRS’s Statistics of Income Division. Between 2000 and 2010, the Foundation Center tracked 427 foundations that made almost 3,800 PRIs.

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