A self-study by the Heron Foundation of its program-related investing will probably interest foundations most for what it reveals about the rewards and perils of, e.g., owning their own brokerage firms. To the rest of us, though, the most important aspect of the report is its elegant statement of rationale:
. . . . Heron’s board of directors understood all too well that the scope of the social problems it sought to address required more significant resources than its mandated 5 percent payout. . . . [T]he board put forth the suggestion that because of Heron’s social mission and tax-exempt status, the Foundation should be more than a private investment company that uses its excess cash flow for charitable purposes. . . .The board began to view the 5 percent payout requirement as the narrowest expression of the Foundation’s philanthropic goals. By looking to the other 95 percent of assets, the “corpus,” the board could conceive a broader philanthropic “toolbox” capable of generating greater social impact than by grantmaking alone.
Perhaps the Foundation could generate even more social impact by spending the corpus rather than investing it, or by equalizing grantmaking and lending rather than giving such primacy to loans; perhaps not. This, at least, is a morally legitimate basis on which to compare program-related investments to grants. The comparison shouldn’t be between the effect of 5% grantmaking and 5% PRIs, with the rest of the principal just sitting there merrily collecting dividends and interest; it should be between large allocations in each form directed to mission. Otherwise, as the Heron board wisely said, "[T]here could be very little to distinguish the Foundation from a conventional investment manager."