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: The Center for Applied Philanthropy : Overview and Definitions
Overview and Definitions
The term "mission investments" generally includes both Program Related Investments (PRIs) and Mission Related Investments (MRIs). Mission investments can include loans, deposits, conditional investments, cash, fixed income, and private or public equity. Briefly defined:
Mission Related Investments (MRIs) are investments that seek financial returns similar to conventional investments, while also producing social, environmental, or educational impact. MRIs provide foundations the opportunity to better align their investment strategies with their mission.
Program Related Investments (PRIs) are investments in either a nonprofit or commercial venture made by a philanthropic institution with the primary objective of furthering its mission. They provide a tool for foundations to leverage their grant dollars, as they are considered charitable expenditures - just like grants - and are included within a foundation’s 5% payout requirement. PRIs offer a return through either repayment or return on equity, which can then be recycled for another charitable purpose. While generally structured as a below-market loan, PRIs can also include loan guarantees, lines of credit, linked deposits, and even equity investments.
To meet the IRS definition*, the primary purpose of Program Related Investment (PRI) must be in support of a foundation's exempt purpose. As investments, PRIs can result in the production of income or appreciation of property but these gains cannot be of "a significant purpose." In determining whether or not a significant purpose of a PRI is the production of income or the appreciation of property - the best consideration is whether or not a typical, profit-seeking investor would be likely to make the same investment, with the same terms and conditions, as the private foundation. In other words, they must be investments that would not have been made except for their relationship to the exempt purposes. Finally, PRIs cannot be used to influence legislation or take part in political campaigns on behalf of candidates.
Other useful Mission Investment terms** include:
Jeopardy Investment Rules—a tax rule that penalizes a foundation that invests in a manner that imperils its ability to carry out its exempt purposes.
Investment Policy Statement (IPS)—a foundation’s central governing document, which drives its investment strategy and of which MRI is a component, if applicable.
Spending Goals—a financial timeframe for a foundation; typically, a part of the IPS.
Payout Policy—the policy that all private U.S. foundations must pay out at least 5% of their net assets as qualifying distributions; Those mission-related investments that are classified as PRIs are considered part of the payout requirement.
Asset Allocation—the strategy deployed by foundations to allocate an endowment across a set of asset classes. The asset allocation policy needs to describe the foundation’s risk tolerance and investment time horizon. The policy should also determine performance benchmarks for each asset class. It is typically part of the IPS.
Mission Investment Intermediary—an entity that accepts investment funds and re-invests them in other organizations in order to achieve social impact and some level of financial return for its investors.
* Source: IRS: http://www.irs.gov/charities/foundations/article/0,,id=137793,00.html
** Source: Godeke, Steven and Doug Bauer. Philanthropy’s New Passing Gear: Mission-Related Investing. Rockefeller Philanthropy Investors, 2008
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