Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
Box 3.2. PRI: Bill & Melinda Gates Foundation (US)
The Gates Foundation focuses on tackling poor health and extreme poverty globally, as well as education
challenges in the US. The Gates Foundation has been a very active and leading player in SII, in particular through a
PRI approach that was adopted in 2009. Since then, funds through PRIs, to organisations tackling social issues have
risen considerably reaching an allocation of more than $1.5 billion as of 2012. PRIs allow the foundation to work in
close collaboration with the private sector to align the foundation’s programmatic (social) goals with the financial
objectives of other investors.
The Table below provides examples of investments that while having the potential to generate financial returns,
are made within the scope of the programmatic and charitable objectives of the Gates Foundation. In particular, the
Africa Health Fund tackles poor health and ASA International contributes to ending extreme poverty in Africa and Asia.
The investments into Aspire Public Schools, a charter school management organisation in the US, address educational
challenges of low-income communities and students.
Examples of Gates Foundation PRI activity
PRI Name Social focus Financing Instrument Goal
Africa Health Fund
ASA International
Aspire Public Schools
Tackling poor Health
Financial Services for the
poor (microfinance)
Education
Private Equity Fund
(co-investment)
Low Interest Loan
Partial backstop guaranty
(with co-guarantors)
Improve access to finance for
African healthcare companies
Affordable financial services to
low-income individuals and
small businesses in
underserved markets in Africa
and Asia
Aspire opens and operates
charter schools in low-income
neighborhoods
Source : Gates Foundation website: www.gatesfoundation.org/How-We-Work/Quick-Links/Program-Related-Investments/
3.17 The PRI approach goes beyond grant-making models traditionally used by foundations insofar as
it builds on a set of financial instruments ranging from direct debt, equity, guaranties and (debt or equity)
funds. At the same time, PRIs are linked to the foundation’s grant programme themes. These financing
instruments are used to further the programmatic and charitable objectives of foundations. The use of
innovative funding mechanisms allows foundations to attract other (co-) investors and involve them in the
social mission. In doing so, PRI is a model aiming to tackle social challenges and yield social outcomes as
its primary objective. In some cases PRIs have the potential to generate financial returns (usually below
market), but this is never the main purpose of the investment. These investments count towards the
foundation’s charitable distribution requirement, but can be considered as assets (or liabilities) that
leverage the foundation’s endowment.
3.18 According to the recent J.P. Morgan and Global Impact Investing Network (GIIN) survey,
program-related investments (PRI) allow foundations to use “more appropriate tools for achieving
programmatic objectives in certain instances” and “access to additional vehicles through which impact can
be delivered (e.g. investment funds)” (Saltuk et al, 2014). A growing number of foundations are engaging
in PRI. Box 3.2 below provides some examples from the Bill & Melinda Gates Foundation’s approach to
programme related investing.
3.19 Some pension funds, insurance companies and other institutional investors have also entered this
market (Wood et al, 2012). However, these mainstream investors tend to focus on investments with at least
a market risk adjusted financial return due to fiduciary responsibilities (WEF, 2013). At the same time,
other private firms, such as investment banks, private banks and private equity funds are exploring areas in
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