“Mission investments” are investments made by foundations and other mission-based organizations to further their philanthropic goals. Mission investments cover two distinct categories of investments: Market-rate mission investments, also known as “mission-related investments,” are part of a foundation’s endowment and have a positive social or environmental impact while contributing to the foundation’s long-term financial stability and growth.
Market Rate Mission Investments
- Market rate mission investments are often called “mission-related investments.”
- A market rate mission investment is fundamentally a financial investment and must meet applicable prudent investor standards just like more conventional investments.
- Market rate mission investments also support the mission of a foundation by generating a positive social or environmental impact.
- In the wider investment community, market rate mission investing is referred to as socially responsible investing, investing in emerging domestic markets, double/triple bottom line investing, green investing or impact investing.
- Market rate mission investments opportunities exist across all asset classes: cash, guarantees, fixed income, public equity, private equity, venture capital and real estate.
Below-market Mission Investments
- Below-market mission investments are often called “program-related investments” or “PRIs.”
- Below-market investments are made to achieve specific program or mission objectives.
- Financial return is not a primary purpose of making a below-market mission investment.
- Private foundation use below-market mission investing by making PRIs eligible to count against the 5% payout that foundations are required to make each year to retain their tax-exempt status. PRIsare defined by the IRS tax code amd must be made primarily to further the foundation’s charitable purpose, must lack any significant investment purpose and may not being used for electioneering or lobbying.
- Community foundations and other public charities make below-market investments, and although many practitioners refer to them as PRIs, strictly speaking they are not as the 5% annual payoutrequired of private foundations is not required of community foundations and other public charities.
- Below-market mission investments may be made across all asset classes, in the form of loans, loanguarantees, cash deposits, equity investments and other investments made for a specific purpose such as affordable, workforce housing, and community development facilities.
Foundations vary in their approach to below-market mission investments: They may include below-market mission investments as part of their grant budget, or choose to view them within the context of their endowment investment allocation.
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