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Funders expand program-related investments

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While they represent a tiny fraction of annual charitable distributions by U.S. foundations, the use of program-related investments among small and mid-sized foundations is growing and becoming more diverse, a new study says.

Foundations increasingly will want to consider those investments to maximize their impact because their assets have lost over one-fifth their value in the economic crisis, leaving them with less to give, says the study by the Foundation Center.

The study, Doing Good with Foundation Assets, tracked 173 private and community foundations that made at least one program-related investment of at least $10,000 in 2006 or 2007.

Program-related investments, known as PRIs, are below-market-rate investments in activities in sync with a foundation’s mission that the foundation can count as part of its annual charitable distributions.

For the foundations the study tracked, a tiny fraction of the more than 75,000 grantmaking foundations in the U.S., program-related investments for the period totaled $734 million.

Those foundations’ overall charitable distributions for the two-year period totaled $91.9 billion.

Foundations’ limited use of program-related investments, the study says, mainly reflects factors such as the limited number of nonprofits with the experience and capacity to manage financial investments; the lack of a predictable income stream needed for repayment; limited proficiency among foundation staff in using investment tools; and foundations’ reliance on more traditional approaches to philanthropy.

A recent survey by the Foundation Center found over half planned to use non-grantmaking activities because the recession, with over one in ten of them voicing an interest in increasing their use of program-related investments.

“These restrictions placed on traditional grantmaking by the current economic environment have provided the best incentive yet for foundations to consider whether PRIs -as well as other forms of mission-related investing – are an appropriate tool to advance their missions,” the study says.

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