Program-Related Investments:
The "Starship Enterprise" of Capital
Before moving into our PRI research results, it may be helpful to cover the basics of PRIs.
- The Basics
Program-Related Investments are legally defined in IRS Section 4944 as investments made by a private foundation with the primary purpose of advancing its exempt mission. While PRIs can yield positive and even substantial financial returns, production of income or appreciation of property cannot be a significant purpose of the PRI. Put another way, to be considered a PRI, an investment’s financial terms must be somehow “below-market.” (Endnote 1)
- Tax-Advantages
Because PRIs are made primarily to advance a charitable purpose, they receive special tax treatment. Most importantly, private foundations count the amount invested in PRIs toward their 5% charitable distribution requirement in the year the PRI is made, just like a charitable grant. Also, when private foundations classify an investment as a PRI, it removes any concern that the investment might otherwise qualify as a “jeopardizing investment,” which could result in fines for not exercising reasonable business care and prudence when investing the foundation’s assets. (Endnote 4)
- Endless Possibilities
PRIs are incredibly versatile. As long as a PRI is made primarily to advance a private foundation’s exempt purpose, structured with below-market financial terms, and not intended to influence legislation or political campaigns, anything is possible. PRIs can be made to any type of recipient entity, including nonprofits, government, and businesses. PRIs can take on any financial form, including equity, loans, convertible debt, and guarantees. And PRIs can be made to organizations in any industry, at any phase of development, and in any geographic location.
- "Going where no capital has gone before..."
Within the context of impact investing, PRIs hold special promise because they are both tax-advantaged as well as concessionary with regard to financial return expectations. PRIs can do things that no other type of capital does and can go where no other type of capital has gone before. PRIs are the “Starship Enterprise”* of capital, and Minnesota intends to be the new frontier.
* "The Starship Enterprise" is a registered trademark of Paramount Pictures Corporation. Venn Foundation is using it here for non-commercial, research, and parody purposes, which it considers "Fair Use."