There is a wide range of strategic approaches to the use of PRIs and MRIs. Among 29 foundations that have most aggressively implemented mission investment strategies, two thirds have invested less than 5% of their endowments over six years. Within the same six-year period of 2010-2015, the range of investments among those foundations has spanned as low as 1% of an endowment (e.g. Robert Wood Johnson Foundation) to nearly 40% of an endowment (Consumer Health Foundation) (see Chart D). Endowments of this set of foundations vary from $14 million to $42 billion, with the higher use of PRIs and MRIs found among the smaller foundations. In other words, while some may presume that PRIs and MRIs are a tool for larger foundations, it appears that smaller foundations are more aggressive in their use.
In order to assess whether mission investing is an appropriate tool to achieve programmatic impact, foundation leadership should understand a spectrum of strategic choices. Charts C, D and E show the range of approaches taken by private foundations, the degree of PRI and MRI use, the range of sectors chosen, and the types of asset classes.
CHART C
Top 29 PRI/MRI investors by $ and number of investments
The Bill & Melinda Gates Foundation reports ~$200 million in 21 investments during the 2010-2015 time period. By comparison, the Herron Foundation reports $26 million invested in 29 investments
Source: Center for High Impact Philanthropy analysis of Mission Investors Exchange data
CHART D
Of the 29 foundations listed below, 12 have used >5% of their endowments towards PRIs/MRIs.
Smaller foundations are doing relatively more (in proportion) of PRI/MRI investing. Cedar Tree Foundation, for example, with ~$100 million in endowment, has placed >10% in PRIs/MRIs.
Source: Center for High Impact Philanthropy analysis of Mission Investors Exchange data; Foundation size data from foundationcenter.org – data as of 2013
Why Invest in PRI/MRI?
Unlike most grants, an investment can infuse much-needed capital into organizations with incentives to build a sustainable business model, e.g. generate cash to provide a return, build disciplined business practices around planning and resource allocation, etc. There is also the potential to attract additional capital by reducing risk for other more traditional investors through taking a first loss position or providing a guarantee (such as a loan or volume guarantee). For example, private foundations have offered to guarantee the purchase of vaccines and medical devices for use in the developing world as an incentive for private corporations to deliver those vaccines at a dramatically reduced price. Finally, the capital invested in a PRI or MRI will likely be returned in the future for recycling into the mission—creating a multiplier effect on social impact.
A question to consider is whether there are investable opportunities consistent with the foundation’s mission and programmatic goals. Unfortunately, there is a lack of consistent data to help understand the outcome and investment performance experienced by other foundations in social sectors such as environment, education and health. (Chart E provides summary level information on investments across sectors by asset class). Anecdotal information and some data are available to help guide the strategic and tactical options available to foundation leadership through such sources as the Mission Investors Exchange, Nonprofit Finance Fund and the Foundation Center. A well thought out theory of change developed by foundation leadership is also an extremely useful point of departure to focus this assessment, i.e. how will a mission investing strategy advance the mission.
CHART E
~$1.3 billion of reported PRIs plus MRIs were made in 14 different sectors utilizing 8 investment vehicles (2010-2015)
For example, of $152 million in education (EDU) investments, $102 million was in private to equity and $38 million was in private debt.
Source: Center for High Impact Philanthropy analysis of Mission Investors Exchange data
Foundation leadership can then determine its strategic goals regarding deployment of capital using the following tool as a guide:
Foundation Operations – Limitations & Challenges
Internal foundation expertise and processes are often optimized for grant making and may be inconsistent with effective identification and execution of PRIs and MRIs. For example:
- Program officers given the task of executing a mission investment may lack sufficient understanding of financial transactions and for-profit business models; investment professionals may focus on financial return at the expense of program goals and become too risk averse in achieving program goals.
- Existing grant making processes may not be suited for managing the flow of PRIs and MRIs such as sourcing, due-diligence and portfolio management. For example, the legal and financial analysis required to complete a debt or equity investment is substantially different than what is required for a grant.
Where mission investing in PRIs and MRIs has become a strategic priority, identifying and allocating appropriate expertise and responsibility is critical to successful execution. Foundations that are inclined to consistently and strategically implement PRIs and/or MRIs should consider:
- Building an internal team (even one individual) with investment expertise who can partner with the program teams to develop and manage the investments,
- Developing a clearly defined end-to-end investment process that embraces and incorporates the necessary financial and legal due diligence required to implement the investment, and/or
- When and how external support can be sourced (e.g. consultants and legal expertise).
While third party providers can be critical to the successful and appropriate use of mission investing, the consulting, business development, legal and fund management skill and experience required to effectively support deal sourcing, due diligence, execution and management of a mission investment portfolio are not fully developed yet or in the preliminary stages of development. To enable appropriate depth and breadth of mission investing, lowering the cost and improving the accessibility of this expertise will be critical. The private sector, academic community, philanthropy (and potentially government agencies) could collaborate to construct the infrastructure necessary to lower the costs and enhance the expertise to lower this critical barrier.