Our Strategy

With a $300 million allocation of its assets, MacArthur makes impact investments to advance established and emerging program goals. Totaling more than $500 million since 1986, these loans, bonds, stock, equity, deposits, and guarantees directly meet the capital needs of special-purpose funds, for-profit businesses and nonprofit organizations tackling environmental and social challenges around the world. MacArthur also is experimenting with the creation of new investment products and platforms that use market-making, syndication and other methods to make it easier and faster for more investors of all kinds to provide flexible, patient, and risk-tolerant capital to high-impact enterprises and intermediaries.

Program-related investments (PRIs) are a statutorily defined exception in the Internal Revenue Code to the rules prohibiting private foundations from making “jeopardizing investments.” PRIs can take many forms, including loans, equity investments, bank deposits and guarantees. PRIs must be made for the primary purpose of accomplishing a charitable purpose and not primarily for financial gain. One of the tests used is whether an “investor solely interested in making a profit would be unwilling to provide capital on similar terms.” In practice, this means that the PRI will have an interest rate or financial return objective that is lower than prevailing market rates for loans and investments of similar duration, credit quality and risk.

Mission-related investments (MRIs) are those that are made with a clear intention to meaningfully contribute to the accomplishment of the Foundation’s philanthropic mission and the success of our programmatic strategies, and to achieve a financial return commensurate with the risk and the social impact to be achieved. Unlike PRIs, MRIs are not statutorily prescribed and have no consensus definition. The jeopardizing investment rules and other legal requirements, such as state prudent investor rules, do apply to MRIs.

Rationale

Through this long experience, the Foundation has found that that many innovative or high-impact enterprises – especially those focused on people and communities that are very poor, widely dispersed, or where the legal and policy context is undeveloped or unstable — cannot provide fully risk adjusted returns for conventional investors, especially those seeking relatively familiar, standardized and easily made investments with modest transaction costs.

It is possible to successfully bridge these “capital gaps.” Strategically designed, highly flexible investments equal to 10-20 percent of a total pool can “crowd in” large amounts of conventional investment by mitigating risk, being more patient, and, if necessary, accepting a return that is profitable but not profit-maximizing.

The end result is a transformed, blended pool of purpose-built capital that is useful to the investment recipient but also suitable for investors providing the bulk of needed funds. When done in a strategic, disciplined manner, this form of impact investing can accelerate the launch of fledging, high-potential enterprises and the scale-up of high-impact, established ventures. It also can be the key to long-term sustainability for enterprises operating in sectors or markets where conventional risks and returns may never be possible absent third party involvement.

Background

Since 1986 the MacArthur Foundation has used program-related investments (PRIs) to expand the reach of its grantmaking, providing approximately $500 million to more than 200 recipients in the U.S. and around the world. During the early years of this program, PRIs were made in conjunction with many different Foundation programs, including conservation, education, affordable housing, women’s health, and independent media to support nonprofits and for-profit businesses in related fields. Many early PRIs went to Community Development Financial Institutions (CDFIs) that expand economic opportunity among low-income people and communities by providing affordable financial products and services. Our Impact Investing loans have helped these institutions attract hundreds of millions of dollars in additional capital from banks, pension funds, and social investors. Following a comprehensive evaluation of the PRI program in 2000, the Foundation decided to increase its use of PRIs and to limit their use to a few areas of major grantmaking interest.

Since 2015, the Foundation’s Impact Investment Policy Statement also has permitted the use mission-related investments that advance the Foundation’s programmatic priorities.
Program-related investments (PRIs) are a statutorily defined exception in the Internal Revenue Code to the rules prohibiting private foundations from making “jeopardizing investments.” PRIs can take many forms, including loans, equity investments, bank deposits and guarantees. PRIs must be made for the primary purpose of accomplishing a charitable purpose and not primarily for financial gain. One of the tests used is whether an “investor solely interested in making a profit would be unwilling to provide capital on similar terms.” In practice, this means that the PRI will have an interest rate or financial return objective that is lower than prevailing market rates for loans and investments of similar duration, credit quality and risk.

Mission-related investments (MRIs) are those that are made with a clear intention to meaningfully contribute to the accomplishment of the Foundation’s philanthropic mission and the success of our programmatic strategies, and to achieve a financial return commensurate with the risk and the social impact to be achieved. Unlike PRIs, MRIs are not statutorily prescribed and have no consensus definition. The jeopardizing investment rules and other legal requirements, such as state prudent investor rules, do apply to MRIs.

Our Strategic Approach

The Foundation’s impact investing work takes a “problem first- tool second” approach, where program priorities, leverage and impact guide the identification, deployment and management of impact investments. From this vantage point, impact investments are used to enhance the outputs and outcomes of the Foundation’s grant-making strategies by providing leverage, connections, learning, influence and demonstrations that would not otherwise be possible.

Over the past decade, we have used PRIs to pursue three programmatic objectives: to help grow the capacity of existing well-managed CDFIs to serve the field; to preserve affordable rental housing in Chicago and nationally through the Window of Opportunity Initiative; and to advance community and economic development in Chicago, including the transformation of public housing and foreclosure prevention and mitigation.

Investment Priorities

As part of the final phase of a major initiative dedicated to strengthening affordable rental housing in the US, the Foundation committed to make impact investments totaling up to $25 million to implement multiple innovative models for financing energy efficiency improvements. In addition, the Foundation will continue to provide capital to advance the Foundation’s work in Chicago, its home and headquarters. The Foundation is exploring new impact investing opportunities related to the Foundation’s focus on climate change solutions, new ways to use capital, expertise and relationships to harness the full potential of today’s rapidly growing impact investing marketplace. Specifically, through a small portfolio of grants and a cluster of large pilot transactions, the Foundation is advancing the creation of new investment products and distribution channels. The goal is to help deeply impact-driven investors more readily invest their assets in more powerful ways. These resources, in turn, can transform more of the mainstream money flowing into the impact investing arena into capital that is truly useful to enterprises whose social and environmental missions create serious economic

Assessment

To track the financial, organizational, and programmatic progress of impact investment recipients, the Foundation uses expert consultants and third-party resources such as the CDFI Assessment Rating Service and PolicyMap, which has conducted periodic surveys of the 40+ practitioners supported through Window of Opportunity, our national housing preservation initaitive. Formal evaluation and assessment of Foundation PRIs in the past has included:

  • a comprehensive, formal evaluation of the program’s first 15 years (2000)
  • an assessment of conservation-oriented PRIs made during the 1990s (2003)
  • a strategic review of the CDFI field (2006)
  • an early look at the impact of the NEXT Awards for Opportunity Finance (2011)
  • an assessment of the PRIs awarded immediately after Hurricane Katrina (2013)
  • Ongoing and upcoming projects include a review of our investment in a dozen Community Development Venture Capital Funds that now have reached the 10-year mark, and a comprehensive evaluation is underway to examine the impact of the Window of Opportunity initiative.

 

Updated August 2015

  • Mission Investors Exchange

    A place where philanthropic leaders and innovators share ideas, tools, and experiences in order to increase the impact of their capital.

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  • Strength Matters Initiative

    A MacArthur-supported network of nonprofit affordable housing owners and developers supporting the growth, sustainability, and impact of the industry

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  • CARS: the CDFI Assessment and Ratings System

    CARS, a MacArthur grantee, provides comprehensive, third-party assessments of community development financial institutions' impact and financial performance.

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Staff

Portrait of Valerie Chang

Valerie Chang

Managing Director, Programs
Portrait of Debra Schwartz

Debra Schwartz

Managing Director, Impact Investments
Portrait of Allison Clark

Allison Clark

Associate Director of Impact Investments
Portrait of John Balbach

John Balbach

Program Officer
Portrait of Urmi Sengupta

Urmi Sengupta

Program Officer, Impact Investments

Marion Goldfinger

Program Assistant
Portrait of Beth Gutelius

Beth Gutelius

Research Associate
Portrait of Louise Powell

Louise Powell

Staff Assistant