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What is a Program Related Investment?

Program Related Investment (PRI) is an investment made by a foundation with the sole purpose of furthering its charitable mission rather than to generate income.

PRIs provide a valuable complement to traditional grantmaking by helping foundations make low-cost financing accessible for other charitable entities such as social enterprises. Furthermore, PRIs enable nonprofits and social enterprises to attract additional capital, partners, and investors while decreasing their risk profile.


Program Related Investment (PRI) is an investment made by a charitable foundation to further its charitable mission. It can take the form of either loan, guarantee, or equity investment and works similarly to grants in that it requires money back by an agreed upon date at typically below-market interest rates.

A Public Private Partnership (PRI) is an increasingly attractive alternative to traditional grantmaking and has gained the attention of donors. It can provide funding for social enterprises and other charitable entities who do not have access to commercial financing at favorable terms or rates. Furthermore, PRIs may support capital projects for affordable housing construction, community development projects, or other community-building endeavors.

Private family foundations and donor advised funds often utilize Prospectus Reporting Initiatives (PRIs). They take a more creative approach to family philanthropy, aligning assets with the foundation’s mission.

Impact investments such as PRIs (Principal Residential Tenants) are tax-exempt and can be an invaluable resource for foundations looking to align their investments with a charitable mission. For instance, family foundations could use their PRIs to make loans to charities in need of low-cost funds or equity investments in for-profit businesses with a social impact.

When a private foundation makes an investment related to programmatic purposes, the legality and tax consequences must be assessed. A PRI may or may not qualify as a jeopardizing investment depending on circumstances; the foundation must demonstrate that it was aware of any changes in circumstances – such as serving an illegal purpose or serving the private interests of its managers – before being subject to this type of taxation.

A Primary Retirement Investment (PRI) should primarily serve the charitable purposes of a foundation and not generate income or property appreciation. Furthermore, it must not aim to influence legislation or support any political candidate. These factors are all essential when evaluating an investment opportunity.


Program Related Investment (PRI) is an alternative to outright grants that allows foundations to finance charitable causes at below market interest rates. This method has the potential to amplify charitable assets and generate new sources of revenue for foundations.

PRIs can take many forms. The most popular is a loan to a charitable organization that must be repaid within an agreed-upon timeframe and at below-market interest. Other PRIs include loans to charities investing their funds in social enterprises, as well as equity investments into for-profit entities with charitable objectives.

Program related investments must significantly further the foundation’s exempt purposes and would not have been made otherwise. Furthermore, they cannot have a major purpose of producing income or appreciating property.

To satisfy this requirement, an investment must be designed to further a recognized charitable purpose under IRC Section 501(c)(3) and must meet one of three tests described below. It also must satisfy the “but for” sub-test, which demands that it actually contributes to fulfilling the charity’s primary exempt purpose.

AEF strives to meet this objective by using both its balance sheet capital and grants budget for PRIs. Combining the two resources allows AEF to make PRIs with variable risk levels, while also ensuring that its PRI team is adequately engaged in pursuing and assessing their charitable impacts.

Another way to reach this objective is by including a “Risk Share” into its Program Grants portfolio. This contribution from the grants budget ensures that PRI team is held accountable to its charitable objectives by forcing them to make trade-offs between contributing assets to a PRI and using those same assets for grants.

This is a relatively recent development in the world of tax-exempt private foundations and donor advised funds. It can help foundations find the optimal combination of financial returns and social impact by providing low cost financing to non-charitable entities that further charitable purposes. Furthermore, it allows them to recycle repaid PRI funds for additional charitable endeavors.


Private foundations may benefit financially when they make program related investments (PRIs). These investments function more like grants than normal investments because they have a return attached. PRIs are usually given to non-profit organizations but can be utilized by both nonprofits and for-profit social enterprises alike.

Investments to qualify as Principal Reimbursable Investment (PRIs) must significantly further one or more of the exempt purposes of a foundation. This determination is complex and depends on each foundation and proposed PRI. In some instances, however, an PRI may need to be made within an overall combination of activities related to those exempt purposes.

Priority Rating Instruments (PRIs) may take the form of below-market rate loans, loan guarantees, linked deposits or equity investments. They could provide low cost financing for social service agencies or affordable housing projects.

In many cases, PRIs will pay back funders at below-market interest rates in less than one year. This allows them to achieve a high return while still having an impact on their community.

The IRS grants a narrow exemption from jeopardy investment penalty taxes to private foundations’ program-related investments. While these may involve high risk and low returns, the IRS does not treat them as jeopardy investments because they further the charitable goals of the investing foundation.

Unrelated Business Income Tax

The Internal Revenue Code has a special tax on revenue generated by nonprofit entities that is not substantially connected to their exempt purpose. This amount of taxation is generally referred to as unrelated business income tax (UBIT).

However, some foundations have a different approach to dealing with UBIT. They are able to avoid paying the tax by meeting a statutory exception.

For instance, the IRS has accepted some PRIs in which a foundation incorporated an L3C or benefit corporation to receive certain percentages of its income from the nonprofit organization. These types of PRIs meet the primary purpose test as private foundations are using their assets to promote economic development in underdeveloped and disadvantaged areas.


Program Related Investment (PRI) is a loan, equity investment or guarantee made by a foundation to further its charitable mission. PRIs typically go to 501(c)(3) organizations and can be used for everything from community development projects to historic preservation – they’re like grants with one key difference – you get your money back by an agreed upon date at often below-market interest rates.

PRIs can take many forms, such as straight loans, convertible debt, equity stakes in startups and stock purchases; low or no interest loans may also be offered. The IRS has declared that a PRI can be structured as a bespoke loan, convertible loan, common or preferred equity, warrants, funded or unfunded guarantees and royalty interests to name a few.

Foundations often make one or more PRIs to finance major milestones like a new building, major renovation, capital campaign or acquisition. Before making such an important financial decision, foundations should consult their legal and tax advisors to ensure the PRI is suitable. Using the right kind of PRIs can make all the difference between success and failure when it comes to charitable ventures.

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