SOCAP10: Learning More About the Gates Foundation Approach to Program-Related Investments

One of the keynote presentations offered at SOCAP10 as part of the Tactical Philanthropy track will focus on impact investments and on how the Bill & Melinda Gates Foundation incorporates Program-Related Investments into its philanthropic strategies. Julie Sunderland (Senior Program Investment Officer at the Gates Foundation) and William Foote, Founder and CEO of Root Capital, which partners with the foundation on its PRI efforts, will provide keynote addresses highlighting their PRI approach. The keynote addresses and subsequent smaller breakout session reflect the tremendous infusion of philanthropy into this year’s conference.

As a mechanism to further extend a grantmaker’s philanthropic efforts, PRIs remain under-utilized and perhaps still misunderstood. Broadly defined, PRIs involve providing financial assistance through loans, loan guarantees, equity investments, lines of credit, and bond guarantees, with the expectation that the investments will generate below-market returns. Where a grant normally involves some combination of program and grants management staffs, a PRI relies more heavily on the institution’s financial and legal experts.

In theory, the current economic crisis should have encouraged more grantmaking institutions to adopt PRIs as part of their philanthropic approaches. With many institutions resisting the urge to allocate more than the 5% of assets legally required per year, PRIs would have presented alternative ways to support nonprofits needing to shore up their annual budgets and expand their services to meet local needs. Under the PRI approach, the grantmaker would in essence borrow from its endowment instead of reducing it by exceeding the 5% threshold. The PRI would also have counted toward the 5% payout requirement in the year funds are paid or advanced (source: Northwest Area Foundation presentation). And yet, the growth in PRIs over the past few years seems to have remained small.

One significant move to adopt PRIs as a philanthropic tactic came from the Gates Foundation, which announced in fall 2009 its intention to allocate $400 million through PRIs. That investment slightly exceeds the total PRIs provided in 2007 by other philanthropies (per the Foundation Center quote in the Chronicle of Philanthropy article).

Grantmakers look to support opportunities that would generate the most disproportionate impact relative to their investments. PRIs serve as a significant tool in the tactics available to the grantmaker. PRIs represent appropriate options when the potential grant recipient needs to leverage financing, requires a large amount of funding to implement its project, or when a grant will not sufficiently provide the resources needed to create that intended disproportionate impact.

However, not all grantmakers – and certainly those without significant experiences with PRIs – are comfortable using this tool in their philanthropic approaches. While somewhat understood, the difficulty remains in identifying the right course of action for a worthwhile potential grant recipient. When is it appropriate to suggest a PRI instead of a grant? Who within the grantmaking institution should be responsible for considering PRIs as a tactic? If that responsibility rests with the program team, what kind of training does the staff need in order to fully appreciate PRIs as a tactic? If a different unit manages the PRIs, how does it consult with the program team?

To that end, I’m looking forward to learning more about the Gates Foundation’s approach to and philosophy on PRIs at SOCAP10. My hope is that additional attention to this approach will make other grantmakers appreciate the potential impact of PRI as a tactic in their overall philanthropic strategies.

Additional Resources on PRIs:

 

Disclaimer: This post is part of a series of posts on the SOCAP10 conference. As part of the blogging coverage for the conference, I was able to register to attend at a discounted rate. A version of this post appears on the SOCAP10 blog.

 

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