When and Why Foundations Should Blur the Line Between Profit-making and Charity

kristy Community Development Solutions, SRI/ESG News

A recent New York Times article on program-related investing highlighted the $10 million equity stake the Bill & Melinda Gates Foundation took in Liquidia Technologies. Some in the foundation world are concerned that the investment blurred the line between profit-making and charity. We and our Braintrust advisor Stephen Viederman say foundations should blur those lines—as long as they deploy their endowment assets when they do so. We would argue that foundations should use all of the tools available to them to meet their mission and purpose: grants, program-related investments and, most powerfully, their endowment assets.

November 28, 2011–An article that appeared on Black Friday in the New York Times business section reported on the growing use of what are known as program-related investments (PRIs). PRIs have lately been made with increasing frequency by foundations as an additional tool within their grant budget to advance their missions. PRIs are counted in the 5 percent grant payout required by the IRS for foundations to maintain their tax-exempt status. However, to qualify as a PRI under the strictest interpretations of IRS rules an investment should be made without consideration for its financial return and it should usually be expected to yield “below market rate” returns.

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