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Guest Blog: Cross Border Sustainable Investing – Creating a PRI Fund

29 September 2022

Sustainable investment funds are an attractive option for private markets investors, asset managers and family offices interested in aligning their values with their investments.

When making grants or other contributions to philanthropic causes, it is important for US foundations to ensure they optimise their spending to avoid losing too much to taxes.

The competition for grants and investment pledges from foundations is intense, so optimising giving can help smooth the process for the foundation and recipient and reduce potential tax burdens.

For this reason, foundations should consider the use of ‘programme-related investment’ ("PRI") funds.

Why PRI funds?

In short, PRI status optimises the tax efficiency of any investment for US private foundations. In addition, conceptually, programme-related investments may be viewed as a hybrid of grants and investments.

For example, a contribution that qualifies as a PRI can be treated as a grant. However, if it is structured as a loan and this loan is repaid, the capital can be used to fund other charitable activities in the future, which is not true in the case of a pure grant.

A PRI also satisfies a portion of a foundation’s annual requirement to make distributions for ‘exempt’ purposes, which is not true in the case of an investment that is not a PRI.

Accordingly, funds structured as PRIs create potentially recyclable capital, which may be more attractive to US private foundations as it significantly expands the potential impact of their portfolios.

Regulatory oversight

The US Treasury’s rulebook sets out the structure and definitions of PRIs[i]. In November 2021, the department issued a private letter in response to a request from a foundation confirming that an investment in a properly structured impact fund[ii] may qualify as a programme-related investment[iii].

In this case, the foundation invested in a fund domiciled outside the US that was created to build resilience and deliver positive social outcomes, by making loans to for-profit and not-for-profit firms. The Treasury confirmed that the investments in question were PRIs for tax purposes.

The primary purpose of any PRI should be to achieve or support a foundation’s exempt purposes, as was clearly the case with the November private letter. The definition of ‘exempt purpose’ is appropriately broad, and can include charitable, religious, educational, scientific, and literary purposes, as well firms or projects that test for public safety, foster national or international amateur sports competition, or those that prevent cruelty to children or animals[iv].

The range of exempt purposes is designed to encompass those that are considered charitable in most jurisdictions and cultures outside of the US. A fund or foundation’s purpose can be restricted to benefit particular regions or a specific issue, and to be consistent with cultural norms such as Sharia law.

For those seeking grants or contributions from US foundations, the PRI approach is an attractive option.

However, it is important to note that the creation of such a fund requires a willingness on the part of the foundation and other core investors to tailor its governing documents as well as adjust administrative functions to comply with the US PRI rules.

In some circumstances, fund managers and other investors may need to make changes to the investments and investment terms within a foundation’s portfolio. These can require the fund to forgo loans or investments that might be attractive to its other investors.

Attracting investments from families and individuals

Many US private foundations are associated with US resident families, but it also can be advantageous for families resident outside the US to create private foundations based in this jurisdiction to facilitate their philanthropy. This approach can help them support non-US charities or provide aid in their home countries in a tax-efficient manner using PRI funds. 

Individual US taxpayers[v] cannot deduct contributions to a foreign entity for tax purposes, regardless of their place of residence, their legal domicile, or the source of their funds.

That said, any individuals who are not concerned about obtaining US tax relief can invest freely in a PRI fund. If the fund is created under the laws of a jurisdiction outside the US, individual US taxpayers must be mindful of potential “passive foreign investment company” reporting requirements and the tax implications these may have.

Philanthropic foundations are always on the lookout for ways to maximise the impact of their donations and grants. Through using a programme-related investment structure, foundations can make their capital go further through tax-efficient recycling of loans – ultimately expanding their philanthropic footprint and helping more people and causes.

Apex Group has a wealth of expertise to help support your impact investment funds. Find out more here.


The guest-blog was co-written by Suzanne M. Reisman, Principal, Law Offices of Suzanne M. Reisman and Bhaskar Dasgupta, Non-Executive Director, MENA & India Boards, Apex Group


[i] See Treas. Reg. §53.4944-3.

[ii] The current debate over whether and how ESG and mission investments should be regulated, greenwashing and related issues are outside of the scope of this article.

[iii] Priv. Ltr. Rul. 202123004 (June 11, 2021).

[iv] Treas. Reg. 1.501(c)(3)-1.

[v] These individuals include US citizens, green card holders, and individuals who are considered resident in the US because of the days that they are present in the US.



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