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Foundations Increasingly Using Investment Assets to Achieve Social Benefit

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Grant makers holding a fifth of all U.S. foundation assets are investing endowment dollars to further their charitable missions, according to a Foundation Center report released last week.

The center’s new report, “Key Facts on Mission Investing,” finds that 14% of foundations it surveyed are directing their assets to either market-rate mission-related investments or to below-market-rate program-related investments, or to both.

Foundations that engage in some form of mission investing have $119 billion in assets, the report said.

The report noted that differences in terminology and methodology aside, mission investing has a singular goal: “to use foundation assets—as distinct from grants budgets—to achieve a public benefit while obtaining market- and below-market-rate returns in different asset classes.”

By law, foundations are allowed to make program-related investments—often loans, loan guarantees or equity investments—which are derived from their assets but count toward their charitable distribution requirement. These investments generally yield below-market-rate returns, according to the report.

By comparison, market-rate mission-related investments may broadly support a foundation’s programmatic goals, but do not count toward its charitable distribution requirements.

The report said that while the Foundation Center has tracked PRI activity for several years, its new report for the first time benchmarks foundation engagement with MRI. More than half of the foundations it surveyed that currently make mission-related investments seeking market-rate returns began doing so within the past five years, and 28% within the past two years.

Among the asset classes of MRIs surveyed foundations held, the largest shares were in fixed income, public equities or cash equivalents.

The report said the potential for mission-related investments is significant: U.S. foundations made some $46 billion in grants in 2010, whereas their assets totaled more than $600 billion.