Program-Related Investments Lost Steam in the Bad Economy

Low-cost loans and other investments foundations make to advance their mission gained momentum as a tool for social change from 1990 until the mid-2000s but trailed off in the wake of the financial crisis, according to a new report from the Lilly Family School of Philanthropy at Indiana University.

Foundations can count such “program-related investments” toward the minimum 5 percent of assets they are legally required to give each year. But unlike the grants they count toward that minimum, such investments are repaid and often provide a financial return.

In 2009 foundations put $701-million into program-related investments, up from $139-million in 1990.

The average size of the investments has grown as well, from $666,000 in 2000 to more than $1.5-million in 2009.

But the study also found that the number of foundations making program-related investments and the number of investments made each year declined from 2004 to 2009.

The study’s authors say the reasons behind the drop are unclear, but they suspect that decreasing demand by recipients and the economic downturn are likely factors.

“Part of it is collateral damage of the Great Recession,” says Patrick Rooney, associate dean for academic affairs and research at the Lilly Family School of Philanthropy. “When the stock and bond markets are plummeting in value, I suspect that the investment officers and the boards at foundations became very concerned about the performance of the portfolios.”

More Buzz Than Activity

There’s a disconnect between the amount of discussion about program-related investments in the foundation world and how many are actually made, says Mr. Rooney.

The study found that in 2004—the year when the largest number were awarded—137 foundations made 421 such investments, totaling $312.6-million. By contrast, the country’s more than 66,000 foundations awarded $31.8-billion in grants that year.

“It’s really the big foundations like MacArthur, Annie E. Casey, and Ford that are driving the buzz about PRIs in the field,” says Mr. Rooney. “The smaller foundations as a group are still kind of sitting back and watching, because they don’t have the knowledge and the expertise on their staffs.”

In fact, the Ford Foundation put $302-million into program-related investments from 2000 to 2010, the most of any foundation.

The study is based on data from the Foundation Center and the Internal Revenue Service and was commissioned by Mission Throttle, a company in Southfield, Mich., that seeks to advance charitable causes using business principles.

The report’s appendices list the foundations that put the most money into program-related investments from 2000 to 2010, the grant makers that made the largest number of such investments, and recipients who received the most money.