Charitable and philanthropic activity in the global hedge fund industry is widespread. Internationally, hedge fund managers and staff are engaged with charities in a multitude of different ways, from workplace giving programmes, to personal foundations set up by a manager or group of managers to donate a portion of their wealth, to board membership or trusteeship of established charities.
Some of the largest individual contributions include George Soros’ Open Society Foundation, which directed $742 million towards charitable causes in 2010, the most recent available data; Paul Tudor Jones’ Robin Hood Foundation, which receives donations from across the industry as well as public fundraising drives and which gave $146 million in grants to dozens of poverty-fighting programmes in New York City in 2012; Louis Bacon, the founder of Moore Capital Management, who has spent close to $400 million on 202,000 acres of land in the US that are either already in conservation easements or soon will be; and the Simons Foundation, which gave $122 million in 2011, also the most recent available data. Hedge fund industry figures who have dedicated the majority of their wealth to philanthropy by signing the Giving Pledge, an initiative launched in 2010 by Warren Buffett and Bill and Melinda Gates, include Bill Ackman, John Arnold, Ray Dalio, Christopher Hohn, Julian Robertson, Jim Simons and Tom Steyer.
But in terms of the charitable and philanthropic activities of the industry, even these examples may be only the tip of the iceberg. The report focuses only on activities in the public domain. It is worth noting that very often the industry’s charitable and philanthropic activities are done in private, and without publicity.
The report sets out the benefits accrued by the third sector and society more generally as a result of these activities. Also outlined are some of the operational issues and challenges faced by hedge fund managers and staff in setting up charitable initiatives. Deciding on a funding model, selecting and monitoring beneficiaries, and marrying work and charitable commitments are some of the common issues raised by interviewees in reflecting on their experiences.
Above all, the report seeks to highlight the social benefits of the global hedge fund industry’s charitable and philanthropic activities: from tangible gains such as the funding of new schools, medical equipment and housing to more intangible benefits including improvements to charities’ strategic planning and financial operations.
The report’s findings are based on interviews with individuals from the hedge fund industry who are active in the charity sector and representatives of charities, which were carried out during 2012 and 2013. Those responses are used in tandem with publicly available data on the financial and social activities of hedge fund charities to gain a detailed picture of global hedge fund charitable activity.
Overview of hedge fund charitable activities by region
- Hedge fund charitable activity is widespread in the US, which is the largest jurisdiction globally where managers are based.
- Philanthropy within the hedge fund industry is slowly spreading across national borders as the industry becomes more global, with new initiatives starting up in Europe and Asia, and UK charitable foundations continuing to develop.
- Despite being domiciled in the US or UK, many philanthropic initiatives from the hedge fund industry concentrate their funding on the developing world, particularly Africa.
This part of the report will examine the spread of hedge fund charitable contributions by region, looking at the important philanthropic players and causes being strongly supported by the industry in each financial centre.
Across the global hedge fund industry, the concentration of managers are domiciled in either the US or UK, which means their charitable foundations are also, somewhat unsurprisingly, largely headquartered in these two countries, particularly within London and New York. But the development of the industry in Europe and in Asian markets has resulted in a similar spread in philanthropic activity across these areas, with firms in Europe and Asia forming co-operative foundations and partnerships with local charities.
The US, where charitable foundations are relatively simple for those with the relevant expertise to set up, is by far the largest contributor of hedge fund wealth to philanthropic causes. As well as administrative simplicity afforded high net worth individuals and financial firms looking to set up private philanthropic foundations, it has also been argued that the prevailing culture and attitude toward charitable donations by the wealthy in the US has made large-scale charitable giving seem a more attractive and even necessary option for hedge fund professionals to engage in.
“In the US, there is an expectation that people who come from money, or people who make a lot of money, will give back”, says Rob Mirsky, a partner at KPMG and founder of Hedge Funds Care’s UK branch. “Almost every wealthy person I know in the US feels this compulsion, it’s a very endemic thing – I think it comes partly from the fact that you cannot rely on the state to provide funding for many important causes, except in the most extreme of circumstances. Also, people who make a lot of money and then give a lot of it away publicly in the US are applauded by society, whereas in the UK there might be a sense that people who openly show their wealth are being ostentatious.”
Many of the major co-operative foundations set up by hedge fund managers in the US have a significant public presence, and have arguably encouraged similar foundations to spring up in their place as the new generation of industry professionals look to become involved in philanthropic causes. The Robin Hood Foundation was established by Tudor Investment Corporation’s Paul Tudor-Jones in 1988 to help alleviate poverty in New York City. One of its more recent events was the “12-12-12” fundraising concert for victims of Hurricane Sandy, which took place on 12 December 2012 at New York’s Madison Square Garden and featured the likes of the Rolling Stones, Sir Paul McCartney, Bruce Springsteen and The Who. Thanks to the proceeds from the concert and other donations, Robin Hood was able to allocate over $70 million to nearly 400 organisations working through America’s tri-state area that are helping families and individuals recover from the storm.
Since Robin Hood’s establishment, numerous similarly modelled foundations have sprung up as joint initiatives between hedge fund managers, each with its own unique focus – from the Tiger Foundation in 1989 (a co-operative between emerging managers of Julian Robertson’s Tiger Management), to child abuse charity Hedge Funds Care in 1998, to 100 Women in Hedge Funds – first formed for female professionals in the alternatives industry and now a multifaceted organisation of 10,000 male and female members dedicated to education, peer leverage and philanthropy - in 2001. These four foundations alone contributed over $170 million to their chosen charitable causes in 2010, according to information available on their websites and financial filings.
The prevalence of giving on this large scale within the industry has inspired the next generation of US hedge fund professionals to come together and engage in innovative new forms of philanthropy, as seen in emerging charitable organisations like A Leg to Stand On, the Opportunity Network and Portfolios with Purpose. A Leg to Stand On, founded by Octagon Asset Management’s Mead Welles, provides prostheses, physiotherapy and corrective surgery for people with physical deformities in Africa and South Asia, and raises around a quarter of a million dollars a year through auctions and music competitions.
The Opportunity Network, founded by former corporate marketing consultant Jessica Pliska and partly overseen by Jana Partners’ Scott Ostfeld, links leading figures of the hedge fund industry to gifted state school students through career and college preparation workshops and financial services internships. Portfolios with Purpose, a new charity fundraiser launched by hedge fund marketing consultant Stacey Asher, encourages managers to combine their philanthropic tendencies with their investment know-how and select five long and short stocks over the course of a year, with the winning investor able to donate the total registration fees to their chosen charity. The High Water Women Foundation, which was founded in 2005 by senior women in the hedge fund industry, supports initiatives that provide mentoring and other skills including financial and computer literacy to women and young people in need. It has provided more than $2 million in grants to date.
In the Americas, Hedge Funds Care also has affiliate organisations in Canada and Cayman. Hedge Funds Care Canada was founded in 2004, and through the support of local industry professionals has gone on to distribute over C$960,000 through 35 grants to organisations that carry out the mission of Hedge Funds Care on a daily basis. Hedge Funds Care Cayman was founded in 2005. Since that time, it has distributed over $1.6 million in 40 grants to agencies and organisations in Cayman that work to prevent and treat child abuse and neglect.
In Canada, the industry’s public charitable activities also include an annual charity golf tournament organised by AIMA Canada, which in 2012 raised $20,000.
The European hedge fund industry is the second biggest contributor to philanthropic causes after the US. One of the most successful is ARK, the international children’s charity founded and overseen by a number of UK-based hedge fund managers including Arpad Busson of EIM, Ian Wace and Paul Marshall of Marshall Wace and Aurum Funds’ Kevin Gundle. ARK runs high-achieving academy schools in deprived areas of three UK cities and runs education, healthcare and child-protection programmes in Sub-Saharan Africa, India and Eastern Europe. Over 10 years the charity has raised £180 million and more than 430,000 children have benefited from its programmes. Its fund-raising dinners and other events have been attended by public figures from Bill Clinton, Tony Blair and the London Mayor Boris Johnson to the Duke and Duchess of Cambridge. Supportive messages are displayed at its events from Nelson Mandela, Archbishop Desmond Tutu and Bill Gates.
100 Women in Hedge Funds’ philanthropic partnership with Britain’s royal family, which was born out of an unanticipated meeting, has also proved a success. “Representatives from our organisation were invited to a reception at the Guildhall in 2008 because of our role as the largest single fundraiser for that year’s Lord Mayor of London’s Appeal, for which Prince William was a patron,” recalls Executive Director Amanda Pullinger. “There was a fire drill in the middle of dinner, and we ended up standing next to him and his private secretary as they were marshalling everybody outside, so we decided to have a chat to them about our mutual interest in charitable activities.”
After discovering similar philanthropic interests, the organisation committed to a three-year partnership with the Duke of Cambridge to align its charitable giving with his list of personal patronages. In turn, the Duke became patron of 100 Women in Hedge Funds. The increase in publicity generated by Prince William’s patronage proved beneficial for both the Duke and the organisation – the year he became patron, £500,000 gross was raised for his nominated charity, Centrepoint – double the amount of the previous year’s fundraising efforts. In 2011, gross funds raised at the 100WHF London gala, attended by the Duke and Duchess, increased again to £710,000. 100 Women in Hedge Funds has recently signed the Duke on for another three-year charitable partnership, this time including his wife The Duchess of Cambridge and Prince Harry as joint patrons, guaranteeing further public attention for their philanthropic causes.
One of 100WHF’s grantees is SkillForce, which aims to inspire hard-to-reach young people to succeed by drawing on the skills and experiences of ex-Armed Forces personnel. The charity works with over 150 schools in England, Scotland and Wales and has helped over 50,000 young people prepare for next steps in education, work or training. The Duke of Cambridge is SkillForce’s Royal Patron. The partnership with 100WHF brought its members together for various events at inspiring locations. These included the Tower of London, onboard HMS Ocean, and at St James’s Palace State Apartments where The Duke of Cambridge met fundraisers and supporters. The partnership also included visits to schools where SkillForce is inspiring young people to succeed.
More discreet forms of philanthropic donations are also popular. Regular donations are made through UK company payrolls, while dedicated foundations that take a portion of a firm’s profits annually have been set up.
The Children’s Investment Fund Management (TCI), for instance, has a comprehensive philanthropic donation arm built into its operations which has been receiving 0.5% of the firm’s AUM since 2003, making it one of Britain’s top 30 charities by income and the biggest charitable contributor from the local hedge fund industry. The Children’s Investment Fund Foundation (CIFF), which focuses on child poverty reduction in the developing world, made £27 million of grants in 2011, the most significant of which went to programmes focusing on HIV treatment in Zimbabwe and education in Ghana.
Large-scale private donations made through a family foundation, similar to the US legacy foundation model, are also popular. For example, CQS founder Michael Hintze’s personal charitable foundation has made donations and commitments of approximately £25 million since inception in 2005. Individual donations include: £2.5 million to the National Gallery; approximately £1.9 million to the Victoria & Albert Museum; £2.9 million to the Wandsworth Museum; and £2.9 million to the University of Sydney. The foundation has also funded a project to repair damaged frescoes at the Vatican.
“Some people might feel an obligation to dance or to paint. I feel an obligation — and a desire — to give... I feel good when I can see that I make a difference,” said Michael Hintze in an interview published in A Year of Doing Good: One Woman, One New Year’s Resolution, 365 Good Deeds by Judith O’Reilly (Penguin Books, 2013). He went on: “I’m not saying I have been poor without being able to eat or that I didn’t have shoes on my feet, but I haven’t been able to have everything or anything I wanted. Now I can have everything I want, and one of the things I want to do is give it away. I’d like to change the world for the better. I’d like to be helpful.”
Brevan Howard manager Alan Howard presides over a charitable trust which in 2009/10 donated over £3.7 million to Jewish organisations focusing on religious education and health. Brevan Howard meanwhile is to give £20.1 million over eight years to Imperial College Business School in London to set up a research centre in financial economics. The cash gift, announced in March 2013, is one of the largest ever pledged to a UK business school.
Winton Capital’s David Harding is another significant donor to educational causes through his family foundation – Harding has recently provided £1 million to Berlin’s Max Planck Institute for Human Development to fund a scientific research centre focused on risk literacy, and he’s also given Cambridge University’s Cavendish Laboratory its largest ever donation, £20 million, to fund a physics research centre that looks into sustainable use of natural resources.
The smaller concentration of locally domiciled hedge fund firms means the amount of charitable activity amongst European hedge funds is considerably smaller than that of the UK. Of the charitable organisations led by European hedge fund staff, most tend to be in their early stages of development, not having yet reached the scale of donations or activities seen by their more established US or UK counterparts.
The comparative difficulty of setting up a foundation from an administrative point of view also presents an obstacle. However, a growing interest in philanthropy amongst high net worth individuals in Europe as a whole means those who take up the challenge to start their own foundation tend to be met with much enthusiasm. Marc de Kloe, Head of Alternatives and Funds at ABN Amro Private Banking in the Netherlands, set up his own Amsterdam-based philanthropic organisation, Alternatives 4 Children, with some colleagues from the hedge fund industry in 2010. “When we were starting up we had no idea what the feedback would be, so we just held a small cocktail reception as our first event,” he says. “But we found the take-up was really great, and we’ve had more and more people want to join in as we’ve grown.”
As well as last month’s fundraising gala that raised over €100,000 for children’s charities in India, Africa and the Netherlands, de Kloe and his fellow founders have rounded up free legal, accounting and communications services from local firms, ensuring all administrative overheads are eliminated and funds raised can all go directly to their chosen beneficiaries. “It’s amazing how much time and effort people will donate once you explain to them what you do and get them on board,” says de Kloe.
Niels Kaastrup-Larsen, CEO of Swiss CTA Rho Asset Management AG, has encountered the same generosity whilst setting up his own local charity, the KidsHeart Foundation, which seeks to prevent sudden and unexpected cardiac death in children and young adults. Kaastrup-Larsen and his wife founded the charity after their young son suffered a cardiac arrest whilst playing football at his school. Luckily he was one of only 5% who survives a cardiac arrest and this was only possible due to immediate basic life support by a first responder and access to a defibrillator within only a few minutes.
The mission of the KidsHeart Foundation is to provide defibrillators to schools in Switzerland and life support training for their staff. “We have found a lot of people willing to donate their time and resources,” he says in connection with setting up the KidsHeart Foundation, which has just launched as an official registered Swiss charity. “We’re working with others in the investment industry who are providing us with legal, accounting and advisory services for free, and we also have a first-class advisory board consisting of leading paediatric doctors in Switzerland who are donating their time and expertise.”
There are significant hedge fund manager communities in multiple jurisdictions in Asia, including Hong Kong, Singapore, Australia, Japan, China and South Korea. As they become more established in the region, Asian hedge fund managers are showing more interest in finding local charitable causes to support.
“There are some [hedge fund managers] that work in emerging markets that would like to look at giving back to those communities,” says Rachel Findlay, Head of Funder Effectiveness at the charitable giving consultancy New Philanthropy Capital (NPC). “A lot of the people we’ve consulted with have been interested in international development charities.”
Co-operative fundraising partnerships between Asia-based hedge fund professionals have also begun to form, one of the most popular being the annual Hedge Fund Fight Nite benefit in Hong Kong, where managers and service providers from the industry battle it out in a series of one-on-one boxing matches. The 14 industry volunteers chosen for the fights train for five months in the lead-up to the event, which in 2012 raised HK$500,000 for its two associated charities – Operation Smile, which funds surgery for children with facial deformities, and Operation Breakthrough, which combats crime and juvenile delinquency in low-income areas of Hong Kong.
Operating in Singapore, and more recently in Hong Kong, is the RICE fund, or Returns Invested in Children and Education, a co-operative foundation between hedge fund professionals in Asia. Funded by donations from firms and individuals in the industry, and overseen by volunteer committees who co-ordinate fundraising and grant allocation efforts, RICE has been contributing to children’s educational and welfare projects across developing areas of Asia like Cambodia and Nepal since 2006. Their advisor, Tessa Boudrie, specialises in social work in the Asian region and travels to grantee projects personally to source and monitor deserving projects.
In Australia, hedge fund professionals join together once a year to raise money for Cure Our Kids, a charity that provides support services for families whose children are being treated for cancer. Founded by a corporate event manager whose son was diagnosed with cancer in 1999, the charity’s board consists of a number of local hedge fund industry executives, such as Aurora Funds Management CIO John Corr and Director of prime brokers Citi Global Markets, John Gregory.
“I believe the hedge fund industry is Cure Our Kids’ biggest supporter,” says Angela Ashton, AIMA Australia consultant and member of the organising committee for the Hedge Funds Rock benefit. The annual event, a hedge fund awards night and variety show, raised A$130,000 for Cure Our Kids in 2012, and to date has amassed a total of A$2.5 million to the cause.
Internationally focused foundations
Although there is an obvious disparity in the concentration of hedge fund charities – both in terms of the number of charitable organisations and their respective incomes – in the UK and US compared to the rest of the world, when we examine the locations where this charitable income is distributed, the picture becomes considerably more even. Africa, for instance, receives around £100 million a year from the major hedge fund charitable foundations, chief among them CIFF and ARK, both based in the UK, and former hedge fund titan George Soros’s legacy foundation, the Open Society Foundations (OSF).
The OSF was founded in 1979 to advocate for democracy and human rights in his native Eastern Europe. The foundation has since expanded to fund advocacy and scholarship programmes in education, health and democratic rights across the world, and in 2010 alone it donated $131 million to projects in Africa and Asia. OSF is in fact the world’s largest hedge fund charity foundation, having donated $8 billion to various causes internationally since its inception.
London-based CIFF and ARK are also significant contributors to African health and education projects. CIFF is pioneering new in vitro diagnostic testing equipment for HIV in Zimbabwe and strengthening anti-retroviral treatments with the goal of reducing HIV transmission from mother to child by 12%. ARK, meanwhile, pioneered anti-retroviral treatment for HIV/AIDs in South Africa, eventually spinning off its HIV programme to local management. In a four-year programme in Mozambique, ARK piloted its own point-of-care HIV testing and secured funding for community health workers speeding up diagnosis and improving adherence to HIV treatment. Working with local partners in Zambia, it is rolling out the country’s first comprehensive anti-diarrhoea programme, securing and improving distribution of vaccinations, building a treatment centre and training health workers and securing two years of free vaccines from GlaxoSmithKline. In Uganda, ARK has drawn on its UK educational experience to open the first wave of a network of secondary schools, working with a local partner and supported by the Ugandan government.
Apart from the humanitarian aspects of aiding with programmes in the developing world, the greater efficiency with which funds can be used also makes projects in Africa and Asia attractive to philanthropists from the hedge fund industry from an investment point of view, like any business opportunity in an emerging market. “We wanted the impact of the money we raised to be more significant,” says Alternatives 4 Children’s de Kloe on choosing his organisation’s beneficiaries, two local schools in India and Mauritania and a charity that provides training and education to families in Mumbai slums.
NPC’s Findlay agrees that many of the hedge fund donors approaching her firm for consulting services also look overseas in order to donate their charitable funds in the most efficient way possible. “They use the analytical skills they put to their business when selecting a charity, so it appeals to their natural skill set,” she says.
Benefits to communities and the third sector
- The physical benefits of hedge fund industry charitable activities are mostly seen in the education and health industries, where they are funding schools, educational materials, and medical training and treatment initiatives.
- Hedge fund managers also help charity directors to grow and develop their business, by connecting them with other significant donors and helping them better allocate their resources and plan for the future.
This section of the report will examine how charitable organisations and the public benefit from the involvement of managers and staff from the hedge fund industry in philanthropic causes. As well as contributing valuable donations that make important new projects and organisations across the world possible, and recruiting other donors who are able to contribute significant funds, hedge fund industry involvement in charities can also help in operational terms.
The most significant charitable industry in which hedge fund firms and managers have been active is education. In the developing world, they have been responsible for establishing schools in remote areas so that children may learn basic literacy and numeracy skills. London-based investment manager Aspect Capital has established schools in Tanzania and Ethiopia with the funds raised from their annual charitable activities, while TCI has developed an initiative with the Ghanaian government to help improve the country’s basic education levels by providing remedial teachers to struggling students.
In the industrialised world, where the emphasis lies more on students’ progression to higher education and employment, hedge fund firms are helping to ensure that students at state schools have access to some of the non-core educational support and enrichment that their privately educated peers take for granted. 100 Women in Hedge Funds contributed its gross 2012 US fundraising proceeds to DonorsChoose.org, an online charity that connects donors to American classrooms in need of essentials – including books, art supplies, and other tools for enriching state school curricula. In addition, 100 Women in Hedge Funds and DonorsChoose.org, individually and respectively, raised additional funds to help replenish supplies and rebuild classrooms damaged by Hurricane Sandy. ARK Schools, ARK’s rapidly expanding education division, runs 18 academies in London, Birmingham and Portsmouth in some of the country’s most deprived inner-city neighbourhoods and plans to grow to a network of 50 high-achieving schools.
Hedge fund managers are also contributing significantly to advances in medical research and training, allowing better treatment of serious conditions whose causes are often underfunded and under-championed. KidsHeart, the charity founded by Rho Asset Management CEO Niels Kaastrup-Larsen, is aiming to provide 1,500 defibrillators to schools in Switzerland, as well as training staff to ensure rapid response in the event of child cardiac arrest. R Baby Foundation, overseen by Marathon Capital’s Andrew Rabinowitz, has funded training and research programmes at 10 different hospitals in the US to educate staff on how to better treat rare paediatric illnesses, in order to reduce sudden infant fatalities.
Hedge fund manager and finance professor Dr Andrew Lo’s model for a cancer research fund has generated a huge amount of interest from governments, sovereign wealth funds and the investment industry as a whole, and Dr Lo plans to convene a conference in 2013 to begin to take the project forward. If successful, the fund will represent a $30 billion investment in 150 different biomedical research projects, with the aim of finding new drugs to prevent and treat the disease.
Welfare projects have also been a significant benefactor of hedge fund philanthropy, particularly through Hedge Funds Care. “We are the only internationally operating charity that raises money for child abuse causes,” says Executive Director Kathryn Conroy. In the 2010-11 financial year, 46,000 children were helped through the organisation’s funding of child abuse education and intervention programmes in the US, UK, Canada and the Cayman Islands.
In the UK, Man Group has also been a notable contributor to charitable organisations that assist the country’s vulnerable. Over the past three years, its Charitable Trust has awarded £270,000 in grants to outreach organisation The Connection at St-Martin-in-the-Fields, which provides homeless people in central London with shelter, counselling support and employment through its corporate partners. The Trust is also co-funding an innovative new holistic care programme for social services children under the UK’s Fostering Network.
Many of the recreational and cultural institutions enjoyed by the public in London and New York are also often co-funded by government and hedge fund philanthropic donations. Lansdowne Partners’ Sir Paul Ruddock’s 10-year period of service on the board of London’s V&A arts museum has seen significant refurbishments that have been funded in the majority by hedge fund industry figures and are now accessible for free to the gallery’s visitors: The Dorothy and Michael Hintze Sculpture Gallery features 16th-20th century European sculptures from the likes of Bernini and Canova, while the Medieval and Renaissance Galleries were funded in chief by Sir Paul himself. In New York, the High Line – a new public park built on a disused rail line above Manhattan’s west side, that derives 90% of its operating budget from charitable contributions – benefited from a $10 million donation from Harbinger Capital’s Phillip Falcone in 2009.
For most charitable organisations, donations of this level are few and far between, which is why hedge fund managers and employees are such vital contributors to the philanthropic income that countless charitable organisations covet year after year. For the lucky beneficiaries of these high net worth donors, the level of economic security they can enjoy, and the amount of new projects and business expansions they can invest in, is comparatively higher than their third sector contemporaries.
“The hedge fund world is extremely philanthropic, and access to that world is paramount,” says the Opportunity Network’s Jessica Pliska. “My board goes to bat for us with their friends and colleagues. We earned that, of course, but it doesn’t make it any less generous when these folks open their rolodexes wide and spend a lot of time fundraising.”
If a charity can cultivate a relationship with an individual in the hedge fund industry, it’s likely that not only that individual’s philanthropic budget, but also those of their colleagues in the industry, will go towards that chosen charity, leading to a circle of influence that can be an extremely powerful income generator for a third-sector organisation. “Everything happens through introductions and relationships,” says Pliska.
Reserve Aid, the American military charity whose board is made up of a number of individuals from hedge funds and hedge fund service providers, has also been a beneficiary of the industry’s networking-friendly approach to philanthropy.
“They [the alternative investment industry] have been our major donors from the beginning,” says Executive Director Polly Weidenkopf. Through founder Lucas Detor’s connections at Morgan Stanley, the charity also receives funds from other benefits organised by hedge fund and investment industry groups, such as Wall Street Rocks, where bands formed from hedge fund and banking staff come together in an annual battle of the bands.
In 2011, the event raised over $250,000, the majority of which went to Reserve Aid – combined with the $400,000 raised by the group’s own New York gala in October, this represents a significant proportion of the $65,000 per month the organisation spends on short-term grants to veterans, and will allow them to move to more sustainable forms of support for grantees in future.
The hedge fund industry can also offer strategic as well as practical and financial improvements to a charity’s operations – the involvement of hedge fund managers on the board of a charitable organisation, or in a co-operative foundation overseen by third-sector workers, often enables the organisation to be governed in a more strategic manner than charities entirely overseen by those with third sector-only experience. Several charity directors spoken to for this report underlined the extent to which forward planning was often key for hedge fund professionals overseeing charities, a factor that had been missing from their previous experiences with volunteer organisations.
“There’s no chance for strategy or business development [in the third sector] because all your energy is expended on trying to raise money rather than actually thinking about what you’re going to do with it,” says Hedge Funds Care’s Kathryn Conroy.
The Opportunity Network’s Jessica Pliska also admits that, as the founder of a non-profit, she’d rarely been used to thinking about business planning before Scott Ostfeld and other professionals from the hedge fund community joined her board.
“Many of these people evaluate, buy and advise companies in their day job, so they have an expertise I don’t,” she says. “Everything I learned about strategy, I learned from my board.”
Because of the reliability of funding that comes from having the patronage of a hedge fund manager, charitable organisation staff often find themselves free to focus more clearly on future development, innovation, and joint ventures with similar organisations, which hedge funds can also assist with.
“One of the UK charities that we support, Centrepoint, wanted help setting up a mentoring service,” recalls 100 Women in Hedge Funds’ Amanda Pullinger.
“We connected them with Big Brothers Big Sisters in the US (who we have also supported philanthropically) and they were able to offer them really valuable advice on what their programme should look like. One thing we don’t think the philanthropic sector is particularly good at is linking up with other organisations – we don’t think it’s due to a lack of interest in collaborating, but rather because most non-profits don’t have time to stop and think about who they can collaborate with because they’re so busy trying to raise funds. With Centrepoint we saw an aspect of the organisation that would benefit from the expertise of another non-profit, and we made the connection. We were well suited to offer advice, given our membership’s broad professional background, and were happy to assist. And, because this collaboration effort was a success, we will continue to seek out opportunities to connect other organisations in this fashion.”
In his financial model for a cancer fund, Dr Andrew Lo also spoke of the importance of investors with a long-term outlook in taking the pressure off biomedical researchers.
“In biotech and pharma companies there is enormous pressure to achieve milestones, so they go for the low-hanging fruit – the ‘me too’ drugs instead of the innovative pathways,” Lo told the Financial Times. “[Long-term investments] relieve the pressure of short-term performance milestones.”
The same emphasis on strategic thinking and collaboration is seen in the UK-based hedge fund charity ARK’s health and education programmes, which have an outstanding record of achieving their targets.
In Zambia, ARK has embarked on a programme to reduce child deaths from diarrhoea in the Lusaka province by 50% in three years, collaborating with many knowledgeable organisations on the ground including the Zambian government, the Centre for Infectious Disease Research in Zambia and the Global Alliance for Vaccines (GAVI) to ensure maximum efficiencies in funding, monitoring and service delivery in an area with which they are less familiar than their native UK. As a result of the success of the collaborative project, GAVI has committed to funding the roll-out of the rotavirus vaccine across the whole country in 2013.
ARK’s UK Schools division is implementing a similar strategic approach to results improvement to great success. Teachers at its academies receive twice the national average of training days a year, with some flown as far as Singapore and the US to better understand innovative new education strategies they can implement to raise attainment in their own schools. ARK Schools runs regular network-wide professional development programmes within each school and as a network together. Good practice and success is widely shared and problems tackled together. Local businesses are engaged to give pupils real-world problem-solving exercises, so that the curriculum is as relevant as possible to students’ future goals.
ARK runs its schools as a series of hubs or clusters, initially in London and Birmingham, which means teachers and students within the ARK ‘family’ can connect with each other and share experiences and resources, while the support team at the centre of the network can monitor each school’s progress and work closely with head teachers on improvement programmes.
Pupils at ARK’s academies make exceptional progress, especially given their on average lower prior attainment on entry. The “value added” score – the measure that best reflects the progress students make between their expectations at age 11 and their achievement at 16 – for ARK’s St Alban’s Academy in Birmingham is one of the highest in the country, despite 82% of pupils having been eligible for free school meals and 73% not having English as their first language. In London, the foundation’s first school to open, Burlington Danes Academy in Hammersmith, had its first sixth form cohort graduate last year, over two-thirds of whom were accepted to their first choice university, while two of its other London academies, King Solomon and Ark, have been rated ‘outstanding’ by national schools inspectorate Ofsted.
Kevin Gundle, ARK co-founder and senior executive at London-based Aurum Funds, told InvestHedge in September 2012 that he credits the success of the organisation to “a huge amount of energy, and recognition that you succeed through collaboration”. The UK Secretary of State for Education, the Rt Hon Michael Gove MP, says: “It is a genuine pleasure to walk into ARK schools and see the difference they are now making for thousands of young people.”
In 2013 the Financial Times analysed the relative performance of different academy groups in raising the attainment of children with low, middle and high prior attainment when starting secondary school. The FT concluded that ARK academies had the greatest success of any academy group in raising the attainment of the pupils who started secondary school furthest behind, observing that: “All in all, it appears that among the multi-school academy chains, ARK is the best.”
An added advantage that hedge fund professionals possess in their attitude towards philanthropic investment is their ability to fully assess a particular area of charitable activity from a business perspective, identifying the opportunities for growth and value and allocating charitable funds in a market-efficient manner. NPC’s Rachel Findlay finds this is the best way to engage charitable contributors from the hedge fund industry – by playing to their strengths and encouraging them to think of philanthropy as they would any other investment, both they and the community will benefit from the experience.
“We encourage funders to focus on one specific area, so they can do their research and understand the landscape of issues,” Findlay explains. “The number of funders already operating in an area, who the big players are and what the funding gaps are.”
Conroy, in particular, who describes the difference between working with hedge fund managers and ordinary third sector organisations as “stark,” has found her volunteer committees are particularly adept at this type of research due to their experience in the business world.
“What I’ve found with working with the hedge fund industry is that business decisions are extremely quick and efficient,” she says. “If we identify an issue that we think needs funding, we get the research done and make a quick decision as to whether it is worth investing in it. There’s no hesitation like in academia or the third sector, which tend to run on a different timetable.”
Hedge fund philanthropic organisations can help staff to develop a niche understanding of a particular charitable area, so they’re more easily able to size up opportunities for growth. The Man Charitable Trust’s strategy has focused on London-based charities that target disadvantaged youth and vulnerable populations, avoiding ‘crowded’ funding areas in the local third sector.
The Trust has helped foster a new organisation to London’s charity sector, becoming a Founding Partner in City Year London – a charity which brings together young people from varying backgrounds for a year-long volunteering programme in inner-city schools. The programme, which originated in the US, might have struggled to attract funding, but the fact that the Trust’s board was able to perceive its long-term prospects led to the Trust designating City Year as a valuable investment opportunity, and it’s now been running for three years.
Sustainability in investment is another key aspect that hedge fund employees can help charity directors learn to incorporate and identify. In choosing where to allocate their group’s charitable funds, Alternatives 4 Children’s Marc de Kloe says he and his colleagues from the Dutch hedge fund industry looked for projects they could help to stand on their own two feet.
“We had no idea about the longevity of the project, but we wanted to make sustainable investments that meant we could give up to three years’ support and then build up the organisations to work autonomously after that point,” he says. “We also wanted to focus on helping them get to the next level as a business so they could better attract funding from other bodies in the future.”
De Kloe, like many other interviewees contacted for this report, spoke of a rigorous process of due diligence before selecting charitable beneficiaries that “asked the same questions we would for investments in a hedge fund” – that is, the ambitions and potential of the organisation to grow, the sound financial behaviours and conduct of the organisation, and a concrete plan as to the direction of the funds. Larger organisations like Hedge Funds Care, 100 Women in Hedge Funds’ philanthropic arm and Man Charitable Trust use a similar robust due diligence procedure before selecting their beneficiaries.
Charities in the financial centres are therefore becoming more interested in engaging hedge fund professionals as both regular donors and board members – or even simply for a few hours’ volunteering, which is often all it takes for a hedge fund employee to decide they want to commit to supporting a charitable organisation in a long-term sense.
“They care about this stuff,” says the Opportunity Network’s Jessica Pliska. “We have a good track record of converting volunteers to donors – people are hooked once they see our students in action.”
Man Group’s Lisa Clarke has also seen first-hand how employees from the firm are keen to contribute to the growth of the Trust’s associated charities once they have seen the value of their work.
“Some of the employees that have volunteered through ManKind have gone on to become trustees of the charities we support,” she says. “We’re really glad when we can foster that sort of involvement.”
The business of hedge fund philanthropy can therefore be seen to occur in a circular motion, with employees often starting out by volunteering or donating, then increasing their involvement to board membership or perhaps founding their own organisation to benefit the vulnerable populations they have observed through their previous experiences. Donations are often just the first, most basic step on the ladder of charitable involvement for hedge fund managers, and are not necessarily the most valuable asset they can offer a charitable organisation.
“We’re great money managers, and what we can do is take that skill set and help charities run better, and understand whether the people they are giving money to are actually capable of using that money efficiently”, says Hedge Funds Care’s Rob Mirsky. “Given our specialist skills, we are better placed than anybody to do that.”
Dr Andrew Lo agrees that by combining business experience and social capital, hedge fund managers can be uniquely valuable to the improvement of charitable organisations. “The investment industry has so much power to channel private sector funds towards important social causes, but also the know-how to structure those causes as profitable opportunities,” he says.
Charitable organisations founded or overseen by individuals from the hedge fund industry have been responsible for significant investments in education, medical treatment and welfare support for those who need it the most, from North America to Europe and Africa.
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