The contribution the hedge fund industry makes to society through its charitable and philanthropic activities is reviewed for the first time in a new report from the Alternative Investment Management Association (AIMA), the global hedge fund industry association.
AIMA’s CEO Andrew Baker says in the forward of the Contributing to Communities report: “One of our objectives traditionally has been to draw attention to the value the hedge fund industry brings to society as a whole, from the role that hedge funds play in stabilising financial markets to the benefits of capital preservation and diversification that they offer to their investors, the majority of whom today comprise socially important institutions such as pension funds, endowments and, indeed, charitable foundations.”
Examining the spread of hedge fund charitable contributions by region, it highlights for Europe the contribution of Absolute Return for Kids (ARK) and 100 Women in Hedge Funds whose foundations are headquartered in London.
ARK is 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 it has raised £180 million and more than 430,000 children have benefited from its programmes.
100 Women in Hedge Funds, whose patron the Duke of Cambridge, enlisted after a chance meeting at a Guildhall event in London, has helped power their fundraising efforts with £500,000 gross raised for his nominated charity Centrepoint, double the amount of the previous year’s fundraising efforts.
The Children’s Investment Fund Management (TCI) was also highlighted having donated 0.5% of the firm’s AUM since 2003 to the Children’s Investment Fund Foundation (CIFF), making it one of Britain’s top 30 charities by income and the biggest charitable contributor from the local hedge fund industry.
Focussing on child poverty reduction in the developing world, CIFF made £27million of grants in 2011, the most significant of which went to programmes focusing on HIV treatment in Zimbabwe and education in Ghana.
The report also points to the contribution by large-scale private donations made through a family foundation, such as CQS founder Michael Hintze. 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.
Baker says: “The industry has always engaged in charitable giving and philanthropy. In this report, …we have chosen to eschew images of gala dinners, celebrity endorsements and presentation cheques so often associated with the industry’s charitable activities. Instead, our primary focus has been on where the money raised ultimately goes — whether a school in a deprived part of London, a much-loved public park in America, a facility in Britain for developing the next generation of scientists or a hospital for sick children in Asia, to name but a few.”
The report shows education in developing countries, medical research, the arts and welfare have been particularly well supported by Hedge Fund Industry donations.
Aside from money, the report reveals skills, contacts, practical help and strategic thinking are particularly valuable contributions of the sector to communities. It says: “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.”
KPMG’s Rob Mirsky, who founded the UK arm of Hedge Funds Care in 2006 that has since distributed over £730,000 in 26 grants is quoted in the report: “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”.
The sector’s ability to collaborate and network, which ARK has used to spectacular effect and impact in both its UK Academy Schools and vaccination programmes abroad, is also highlighted as an asset of hedge fund philanthropy .
Among the the common operational issues encountered by hedge fund firms and staff in the course of setting up their own charitable foundation or engaging in regular philanthropic activities centre around sourcing and managing donations, selecting worthy and appropriate beneficiaries, scheduling time for charitable activity around a demanding work schedule, and determining the appropriate way to monitor the activities of beneficiaries once funding has been given.
While the contribution made by the Hedge Fund Industry is significant, it is estimated that around 100,000 people are employed directly by managers in the industry worldwide, which, if it were a single company, would still fail to make Fortune’s list of the 50 biggest corporations in terms of employees. Baker says: “Suffice to say, and given its size, the hedge fund industry does — and quite rightly — make a real contribution to communities.
“We also recognise the limitations of charity and philanthropy itself. Altruistic gestures are features of compassionate societies. But they should not be a substitute for addressing the deeper causes of poverty and inequality. The charitable and philanthropic activities of the hedge fund industry matter, but they can only ever achieve so much.”
The findings are based on interviews with individuals at charitable bodies and hedge fund manager firms and on publicly-available data from organizations, companies and individuals. The report does not cover private acts of philanthropy or charity, however.
Contributing to Communities can be downloaded from the AIMA website