Typically, a private foundation makes grants to further its charitable work and makes investments to increase or maintain the size of its endowment. Increasingly, however, foundations are breaking down the wall between their endowments and their grant dollars, employing both to further their charitable work.

Program-related investments (PRIs) have elements of both investments and grants. They also have unique advantages. A PRI is a qualifying distribution that counts toward meeting the foundation’s annual minimum distribution requirement. However, whereas grant dollars go out the door never to return, PRI dollars are generally recovered in part or in whole, and may even earn some return for the foundation in the form of interest or appreciation.

PRIs are not subject to the normal prudent investment standards. For legal purposes, PRIs are considered to be more akin to grants because they are made primarily to further a charitable purpose without concern for return on investment. For this reason, PRIs do not have to be prudent, and they are not subject to an excise tax for jeopardizing investments.

A PRI can only be made to further the foundation's charitable work. However, the entity that receives the PRI need not have a charitable purpose.

There are three typical types of PRIs: loans, loan guarantees, and equity investments in for-profit organizations, such as corporations, limited partnerships, and limited liability companies. This article will give an introduction to PRI equity investments.