Assessing and Managing PRI Risk Nothing Ventured, Nothing Gained

When grantmakers talk about assessing and managing the risks associated with program-related investing, they're referring to both financial and programmatic concerns. GrantCraft asked five experienced PRI makers how they think about risk, how they weigh and balance different sorts of risk, and how they mitigate risk in their PRI portfolios.

This conversation supplements GrantCraft's guide, Program-Related Investing: Skills & Strategies for New PRI Funders. 

Q: When PRI makers talk about risk assessment, what are they talking about? What is “risk” in your line of work?

Robert Jacquay: The first step is to gauge whether or not the organization will achieve programmatic effectiveness; that’s the mission part. But we’re also responsible for determining whether the foundation could lose some or all of its investment. To do that, we measure the accuracy of the revenue streams coming into the organization to see if it will be able to repay the foundation. If the deal is collateralized, we want to be sure the collateral has value that we could use to reclaim payment if things, unfortunately, don’t work out. In many ways, the financial analysis complements our evaluation of mission. Together, they constitute our risk assessment.

Tom Trinley: We look at four things. First, before we even get into true risk assessment, we make sure the project is something we couldn’t do with a grant. Second, the project has to fall within one of our two program areas: arts or land conservation. The third thing we look at — and this really gets to due diligence and monitoring, which are both parts of risk assessment — is that the foundation has a funding history with the organization. We would simply not make a PRI to a first-time applicant. We wouldn’t know their history of keeping good budgets, of spending according to plan. We wouldn’t know their fundraising history. We wouldn’t know their operating style. We wouldn’t know their board capacity in several important areas: fundraising, governance, management. Finally, we would want to make sure there’s a designated cash stream for the payback of the PRI. All of these variables are either understood from history or are reviewed as the first step of our PRI process, which we call assessment.

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