Program-Related Investments (PRI)
Why is it that private foundations spend so little of their endowment on mission investing? Is there an opportunity to make it bigger?
In this paper, you will find an explanation of the barriers to mission investing, also known as Program Related Investment (PRI) and Mission Related Investment (MRI), and a concluding hypothesis about what it will take to help remove the barriers.
Educating foundation leadership, building foundation staff expertise, improving data quality, and lowering the cost of making a mission investment are all issues to understand and address. If our hypothesis is correct, the time is now to build the necessary data, education, and support capabilities to help private foundations better access private sector investment tools to advance their mission.
In this paper, the reader will find definitions, analyses of Mission Investor Exchange data to outline the current state of the sector, and barriers to the use of mission investing with specific examples. It also includes our team’s thinking on what, if provided, might remove the obstacles. These findings are organized in the following sections:
There is insufficient understanding of the definition of PRI and MRI. Both PRIs and MRIs provide some level of financial returns from the social enterprises they invest in, but PRIs and MRIs are characterized and treated differently by the Internal Revenue Service.
Foundation board members and management often lack sufficient understanding and appreciation of how PRIs and MRIs can enable programmatic success. For example, traditional focus is often on grant making and maximizing financial return on the endowment.
Specificity of program goals can limit the range of investing opportunities. For example, based on the Mission Investors Exchange (MIE) database, of the $1.3 billion total invested between 2010 and 2015, just 12% of the PRIs and MRIs was directed towards education. Therefore, a foundation focused on education may be limited to a similarly narrow spectrum of opportunities.
Internal foundation processes, resources and expertise may not be appropriate or sufficient to implement a PRI or MRI. For example, most foundation staff have little or no experience or training in the financial due diligence required to execute a PRI or MRI.
In order to execute a PRI or MRI, foundations must navigate a complex system. Currently, that system is characterized by weak financial and social outcomes data, often unclear legal guidance, and advisory services that are relatively new and may not be completely effective in sourcing and executing PRIs and MRIs.