Program Related Investments: How to Use a Donor Advised FundSubmitted by American Endowment Foundation on February 5th, 2015
By Eric Kinaitis
A program related investment (PRI) is a charitable distribution strategy that enables donors to use the assets in their donor advised fund (DAF) to leverage the impact of their philanthropy. Unlike grants, however, donors intend to get a return on their investment, through either repayment of the loan or return on the investment. This is also known as “mission-driven financing “or “venture philanthropy.”
PRI is an ideal way for a donor to use the assets in a donor advised fund to fund a charitable cause where commercial funding sources are either not available to the charity, or not available at attractive terms. As an alternative to an outright grant, the donor recommends an investment from their DAF in the charity, social enterprise or commercial business with the understanding that the investment may be recovered within an established time frame. Often the repayment or investment return is recycled for another charitable purpose.
A donor watched their church struggle in keeping up with monthly mortgage payments on the old church building while the new church was being built.
The donor wanted to help the church manage their finances until the old church was sold. To accomplish this, they recommended their donor advised fund make a program related investment to the church under the terms of a loan agreement that provided for the church to make regular quarterly payments of principal and interest, well below the current adjustable rate and more within the church’s means.
This arrangement enabled the church to repay the loan to the donor's DAF over a 10 year span. At that end point, the donor rewarded the church for exercising fiscal responsibility by making a grant distribution to the church for the amount of interest paid by the church over the course of the loan.
PRI allowed everyone to win; the church gets the free use of the money and earns respect for exercising fiscal responsibility and the donor's DAF gets its “investment” in the church back.
PRIs include financing methods commonly associated with banks or other private investors such as low or no interest rate loans, loan guarantees, linked deposits, and even equity investments in charitable organizations or in commercial ventures for charitable purposes.
At American Endowment Foundation, we look forward to discussing the creative ways that a donor advised fund can be used to make program related investments. Contact us or call at 1-888-660-4508 to learn more about the innovative ways that we can help the interest of donors and their trusted advisors.