Investors
AIMA has published a report on philanthropy in the hedge fund industry.
The study looks at the global hedge fund industry’s charitable activities ranging from workplace-giving schemes and fundraising campaigns to individual examples of philanthropy.
“The AIMA study is useful in that it shows how hedge funds as an industry contribute to society and social welfare programs, which is something that is not often reflected in the popular perception of the industry,” said Robert Mirsky, head of the hedge funds group at KPMG in London, and founder of the UK branch of Hedge Funds Care, which has raised more than £1 million for children’s charities since inception in 2006.
The US is by the far the largest single contributor of hedge fund wealth to philanthropic causes, the report said. The US as a whole donated $300 billion to charitable causes in 2010/11 compared with just £9.3 billion in the UK. “In the US, there is an expectation that people who come from money or people who make a lot of money will give back. 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,” said Mirsky.
Mirsky said UK attitudes towards charitable giving sometimes discouraged philanthropy. “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,” he said.
Some of the best known charitable foundations in the US have been established by hedge fund managers. The Robin Hood Foundation, for example, established by Paul Tudor-Jones of Tudor Investment Corporation in 1988, has donated $1.1 billion to help alleviate poverty in New York. In 2012, it raised $70 million at a fundraising concert headlined by the Rolling Stones and Bruce Springsteen for Hurricane Sandy victims.
Europe is the world’s second biggest hedge fund philanthropic centre, with Absolute Return for Kids (ARK) being the best known charity. The foundation, established by Arpad Busson of EIM, Ian Wace and Paul Marshall of Marshall Wace and Aurum Funds’ Kevin Gundle, has raised £180 million for children’s causes in both the UK and abroad. ARK is renowned for its annual dinner, which charges attendees up to £10,000 per head, and has featured live acts from Elton John and Prince.
However, recent reports revealed the charity has put on hold its 2013 dinner as it seeks to explore alternative fundraising avenues. Some point out the event has faced negative publicity in the mainstream media for its opulence while one report suggested financial institutions were loathe to take clients to the dinner for fear of violating the UK Bribery Act.
Mirsky said media hostility towards events such as the ARK gala dinner was counterintuitive. “Events such as the ARK dinner raise huge sums of money for good causes and hostility towards them is misguided,” he said.
At a time of savage government cuts, private sector philanthropy is more important than ever. “There have been significant cuts in government spending and this is having huge knock-on effects on the most disadvantaged in society. Private sector philanthropy therefore is of huge importance at this time at helping the most vulnerable in society,” commented Mirsky.
Hedge fund philanthropy is rapidly gaining ground outside of the US. “The growing amount of international attention paid to the major US-based charitable foundations set up by hedge fund managers, as well as the gradual spread of the hedge fund industry to financial centres beyond London and New York, is contributing to a greater number of charitable organisations based in Europe and Asia. Hedge fund philanthropic activity in the UK is also developing strongly,” read the AIMA report.
Educational causes both in the developed and developing world are the chief beneficiaries of hedge fund donations. ARK, for example, runs 18 academy schools in some of the most deprived areas of London, Birmingham and Portsmouth. Medical research is also a popular cause. The R Baby Foundation, overseen by Andrew Rabinowitz of Marathon Capital, provides training and research programs at 10 different hospitals in the US to better educate staff about rare paediatric illnesses. Cultural initiatives also feature highly among hedge fund donations.
The paper also argues hedge funds can offer strategic, as well as financial improvements to charities’ operations. “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. Given our specialist skills, we are better placed than anybody to do that,” commented Mirsky.
A growing number of hedge funds are also establishing in-house charitable arms with a budget or percentage of their management fees being set-aside for good causes nominated by employees. Employees at Winton Capital, for example, are eligible to receive up to £10,000 per year to fund a charity of their choice. “Since 2007, Winton has matched approximately £500,000 to a range of charities including Helen & Douglas House Children’s Hospice, the National Autistic Society and Great Ormond Street Hospital,” said Robin Eggar, Winton’s head of communications and public affairs.
Nonetheless, there are challenges to hedge fund philanthropy, in part due to rising operational and regulatory costs, and falling profit margins at hedge funds. However, the paper added the industry has adapted. “Co-operative funding may be a more efficient way to raise donations in a post-2008 world. The majority of the charitable initiatives set up by hedge fund industry professionals in the past four years since the crisis, interestingly given the pressure to cut costs across the global financial services industry as a whole, have drawn together many donors rather than a single source, allowing a more modest contribution from each which still adds up to a significant contribution overall,” reads the AIMA paper.
Finding time to meet these charitable commitments is also a challenge for the industry, although it is not insurmountable, the paper added. The paper said it was essential hedge funds ensure money is spent correctly and that charities are transparent with their spending. Hedge Funds Care adopts a rigorous approach to on-going monitoring, assigning a consultant to supervise and evaluate grantees for the first three months of funding. Their reports are used by Hedge Funds Care to determine whether or not to award future grants.
However, many hedge fund professionals opt to keep their philanthropic efforts below the radar. “This report just focuses on those charitable and philanthropic activities that are 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,” said Andrew Baker, CEO at AIMA.
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