The decision whether to make a grant or a PRI is a “business” decision of the foundation, and neither form of charitable distribution is favored or disfavored over the other under either federal or state law; it is simply that grant-making is traditionally more common and thus more familiar to state regulators and the public. Whether a private foundation makes grants to charities or PRIs in L³Cs, charities, or other entities, the funds must be used to accomplish charitable purposes. If the PRI is in the form of a loan, the foundation eventually recovers its principal and perhaps earns interest. If the PRI is in the form of an equity investment, then the foundation may earn a return on that investment and eventually recover its capital contribution. Unlike a grant that is never recovered, PRIs may be repaid and then used by the foundation to make additional grants or PRIs. Thus, PRIs actually increase the funds available to accomplish charitable purposes over time.

Although it is impossible to project how foundations might array their charitable activities in the future, a significant shift away from grants is unlikely to occur, simply because of the traditional focus of many foundations on grant-oriented charity. However, this question suggests an economic analysis focused on a variation of “opportunity cost.” Viewed from that perspective, it may make more sense for a foundation to invest—rather than give away—its charitable funds because the foundation will be able to recover and redeploy the funds to accomplish additional charitable purposes in the future.

Foundations will be in the best position to determine whether their funds will have the most impact if granted or invested in a PRI. Based on the above considerations, if a foundation’s charitable portfolio consists of a thoughtful mix of grants and PRIs, the foundation could actually increase its funds available to accomplish charitable purposes over time.

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