Spreading the wealth June 2008 Magazine
Hedge fund giving grows; the Absolute Return Top 25 Hedge Fund Foundations reach $4.6 billion
By Britt Erica Tunick
When Hurricane Katrina hit the Gulf Coast in late August 2005, decimating New Orleans and causing more than $81 billion in damage, hedge funds were there. And during last summer’s subprime mortgage market meltdown and the multiple follow-on effects, hedge funds were there. In both cases, hedge funds were among the first asset managers to spot money-making opportunities from the disasters – profiting from the surge in energy prices created by Katrina, and betting, quite rightly, on the decline of housing derivatives.
Yet hedge funds were also among the fastest to contribute to recovery efforts for both calamities. In the aftermath of Katrina, George Soros’ Open Society Institute contributed $815,000 to eight nonprofit groups in the South dedicated to helping low-income workers, immigrants and women affected by the disaster, along with more than a dozen grants to media professionals focused on documenting the turmoil. As the number of delinquent subprime mortgage holders recently climbed to one in three, efforts to help have been just as rapid. In February, Open Society Institute pledged $10 million over the next two years to help borrowers fend off foreclosures – an issue that has also garnered support from John Paulson, whose Paulson & Co. has contributed $15 million to the Center for Responsible Lending.
Hedge fund managers represent only a small number of individuals in the U.S. philanthropic community, but their impact is significant – and growing. Assets among the Absolute Return Top 25 Hedge Fund Foundations total $4.6 billion, according to the latest data available, a 31% rise from the group’s $3.5 billion in assets at the time of last year’s survey. In that time, contributions to the top 25 foundations have climbed 24.8%, to over $1 billion, up from $865 million last year. (Data reflect totals for foundations’ most recent filings with the Internal Revenue Service, which span from calendar yearend 2005 to fiscal year 2007).
“Very few people have an opportunity to change the way that they look at things during their lifetime with money,” says Campbell & Co. founder Keith Campbell, whose Keith Campbell Foundation for the Environment gives roughly 150 grants each year for environmental causes. “There are plenty of people who give their lives to politics, environmental causes and health causes, but without the money to sustain them, they wouldn’t be able to do so.”
Total giving by the top 25 hedge fund foundations increased 61%, to $459 million, compared with data available at this time last year. As the amount of money fund managers contribute to philanthropy rises, so too does the number of causes they support. Charities aimed at children, education and healthcare have long been the most popular causes among hedge fund managers – a fact consistent with the broader philanthropic community. However, hedge fund foundations have been contributing to a broader array of causes and striving to play a greater role in disaster relief, both natural and man-made. The causes receiving donations from hedge fund philanthropies now range from human rights, to prevention of child abuse and eating disorders, and even an effort to lower the U.S. drinking age. Hedge fund managers are also taking a hands-on approach with the charities they support and upping the requirements they attach to such donations. What results is an increasingly powerful group of donors, one whose importance could rise as the United States grapples with the threat of a recession.
Given the poor performance reported by many hedge funds in recent months, nonprofits are bracing for the impact such declines might have on donations in 2008. “The two leading indicators in charitable giving are how people feel about their own personal finances, and then the performance of the stock market,” says Bob Ottenhoff, president and chief executive of Guidestar, which tracks data on nonprofits. While such factors are understandably causing concern among charities, he says, it is still too early to tell if recent market turmoil will affect philanthropy. “Obviously, people are worried, but there has yet to be any precipitous decrease,” says Ottenhoff, noting that any decline is unlikely to be visible before the end of 2008 because most nonprofits raise the majority of their funding in the second half of the year.
So far, professionals within the nonprofit industry say uncertainty surrounding the economy has yet to curtail hedge fund giving. It is difficult to get a real-time reading, however, because publicly available financial data trail the group’s current activities by at least a year. If their most recent filings are any indication of the future, hedge fund managers will continue to pour money into their foundations, and the size of donations their foundations make will continue to rise. Nowhere is that more apparent than our third ranking of the top hedge fund philanthropies.
The single-donor hedge fund foundations that make up the list have shifted slightly, but on the whole, there has been little change among the top 10. The foundations that captured the first three spots in this year’s rankings are all repeats from last year.
Soros’ Open Society Institute maintains its status as the hedge fund industry’s largest foundation, with assets totaling $1.3 billion, according to its most recently reported fiscal year. The foundation’s assets rose by an impressive 53%, from $858.9 million at the time of last year’s rankings. Herb Sturz, a trustee of Open Society Institute, says annual giving among Soros’ foundations averages between $400 million and $500 million.
Julian Robertson’s Robertson Foundation holds on to second place with $750.9 million, a 14% rise from last year’s $659 million. And Jim Simons’ Simons Foundation repeats in third, counting $477 million in assets, up 47% from the $324.8 million it recorded last year. Rounding out the top five are Stephen Mandel’s Zoom Foundation, with $196.6 million, and Keith Campbell Foundation for the Environment, which boasts $161.9 million.
Children, healthcare and education dominate hedge fund philanthropists’ giving, with the majority of the top 25 foundations reporting donations to domestic charities dedicated to these issues. But a shift is gradually taking place. Following the lead of the Bill & Melinda Gates Foundation – which, with $33.1 billion is the largest U.S. philanthropy – a rising number of hedge fund foundations has begun funding many of the same initiatives overseas.
Susan Frunzi, a partner with law firm Schulte Roth & Zabel who specializes in trusts and estates, says there has been a noticeable rise in the amount of money philanthropists have been directing overseas in recent years, particularly to the Third World, including Africa. “Overseas giving isn’t something that’s new, but the level of emphasis has been greater,” says Frunzi. One representative of the shift is High Water Women, a philanthropic and volunteer group founded in 2005 by Kathleen Kelley, global macro portfolio manager for Kingdon Capital Management, and Leslie Rahl of Capital Market Risk Advisors.
Kelley says that in 2007, High Water Women focused its giving on microfinance overseas in an effort to educate poor and low-income communities about financial services. “People love the idea of microfinance. And when you’re talking about kids and education abroad, a lot of times that ends up meaning microfinance because it is usually the mother who is the head of the family and is running, or trying to run, a small business to support her children,” says Kelley. This year, she says, High Water Women has shifted its focus back to the United States to focus on financial literacy and math education. “To break the cycle of poverty, you have to be able to figure out what you have and how to manage that,” she says.
Interest is also heating up on the environmental front, specifically around the issue of global warming. Fueled by greater media attention in recent years, particularly the glut of attention given to former Vice President Al Gore’s 2006 global warming documentary, “An Inconvenient Truth,” there has been a rise in the amount of money making its way to environmental causes. That’s good news for longtime environmental activists such as Campbell, who believes problems like global warming can no longer be ignored.
“If you look back 10 or 20 years, the words ‘global warming’ didn’t really resonate with anybody,” says Campbell, joking that for many people in the Northeast warmer temperatures simply mean the possibility of an extra month on the golf course. But as warmer temperatures have made it difficult for some animal and vegetable life to survive in certain regions, and pollution of major waterways such as the Mississippi River has become impossible to ignore, awareness of the problems plaguing the environment has risen – along with financial support for efforts to combat many of them. “People are now beginning to realize that we have these issues, and if we don’t deal with them real soon, we probably will not be able to deal with them long term,” says Campbell.
An avid outdoorsman – he enjoys fishing, surfing and skiing – Campbell says his passion for the environment began in childhood. Today, he serves as chairman of the Chesapeake Bay Foundation’s board of trustees, a nonprofit launched in 1967 that fights for stronger regulations to protect the largest and most important estuary in the United States. In 2006, the Campbell Foundation gave $7.8 million to environmental causes – in roughly 150 donations – ranging from a $4,000 gift to the Environmental Media Fund’s film festival to a $110,000 contribution to Oakland’s Environmental Defense Fund to support California fisheries.
Campbell is not alone in his passion for the environment. Tiger Management founder Julian Robertson and Tudor Investment president and founder Paul Tudor Jones II have also made big contributions to preserve the natural world. Robertson’s $750.9 million Robertson Foundation and $18.6 million Tiger Foundation have given $8 million over three years to the Environmental Defense Fund, on top of the big donations Robertson has made directly. “He’s committed his own personal money for lobbying for climate change because he believes it’s a significant challenge that could be devastating for the future,” says Fraser Seitel, a spokesman for Tiger. Jones, an avid fisherman, chairs the Everglades Foundation and has given hundreds of thousands of dollars to help restore the Florida Everglades.
Phil Buchanan, president of the Center for Effective Philanthropy, a nonprofit that works with large foundations to help them improve performance, says increased attention to issues such as global warming is leading to larger contributions. “There are at least a few examples of contributors saying ‘well, if we really care about global warming and think that it is an imminent threat to our planet, it doesn’t make any sense to manage our foundation to exist in perpetuity,'” says Buchanan. He notes that several foundations have begun increasing the amount they give away each year beyond the traditional 5% annual payout.
Under the U.S. Internal Revenue Code rules for 501(c)(3) organizations – the tax exemption status granted to an array of nonprofit and religious groups – charities are required to give away 5% of their assets each year. Until recently, Buchanan says most charities have adhered to the 5% guideline to ensure their long-term sustainability. But as government aid has become more scarce and nonprofits struggle to land funding, he says there has been a noticeable rise in the number of philanthropists increasing the size of donations they make. Many hedge fund philanthropists have also been attaching more strings to donations.
“When it comes to hedge fund philanthropists, it’s important not to just look at how they’re giving more money and what kinds of nonprofits they’re donating to, but how they’re donating and taking advantage of the multiplier effect,” says Kathleen McCarthy, director of the Center on Philanthropy at the Graduate Center at the City University of New York. With many hedge fund managers approaching philanthropy the same way they approach investments in their portfolios, it is becoming common for nonprofits to be asked to demonstrate quantifiable results from the funding they receive. McCarthy says a major driver of this trend is the Robin Hood Foundation, a nonprofit founded by Jones in 1988 that relies on donations from multiple hedge fund managers to help fight poverty in New York City.
As part of its model, Robin Hood leverages federal grants and partnerships to help grantees, often requiring its beneficiaries to match a percentage of the money they receive through their own fundraising efforts and demonstrate how the funds have been used to improve the work of their organizations. “It’s the ‘so what’ question,” says McCarthy. “It’s looking at how you prove you’ve had an impact and, if you’re not having an impact, how you use the data to help refine what you’re doing.”
The heavy investment influence that hedge fund managers’ careers have on their philanthropy activities has also led to the creation of more public/private partnerships, which aim to leverage public funding with private support. Such partnerships have recently come to the forefront as foundations such as Soros’ Open Society Institute have stepped in to help subprime mortgage holders fend off foreclosures.
Among Open Society Institute’s contributions to help with the U.S. mortgage crisis, the foundation gave $1 million in 2008 and committed another $1 million in 2009 to the Center for New York City Neighborhoods, a nonprofit created in December 2007 to provide counseling, legal assistance, loan remediation, advocacy and education around the issues of lending and mortgage foreclosures. Funding for the center, which has a projected budget of $5.3 million for its first year, is through a combination of public funding – $1.6 million from the New York City Council, $1 million from the New York City Department of Housing Preservation and Development – and the rest from private foundations and institutions. Beyond Open Society Institute, contributors include the Robin Hood Foundation, the Rockefeller Foundation, Paulson & Co. and Citigroup.
In late 2005, the Open Society Institute’s Sturz took a similar approach by partnering with New York City officials and civic leaders to create the New York Acquisition Fund, a $230 million partnership that will help purchase land and build more than 30,000 units of affordable housing in Manhattan over 10 years. As with the Center for New York City Neighborhoods, the New York Acquisition Fund relies on a combination of government and private funding. In addition, the organization can rely on the balance sheets of big foundations to guarantee loans that help developers acquire land at lower interest rates. “In sitting down and asking, ‘How do I solve this problem?’ [hedge fund foundations] are realizing that the biggest pocket of funding available will always be from the government, so these public/private partnership have come about,” says Kingdon’s Kelley. “You’re never going to have more money than the government, so the best thing to do is figure out a way to work with them and to push them to use their money more wisely.”
As with most charities, the biggest determinants of where hedge fund foundations direct their money are the causes that have had a personal impact on their founders. Baupost Group founder and president Seth Klarman’s $105.8 million Klarman Family Foundation has directed donations to a wide range of issues since its creation 18 years ago, from poverty, education and healthcare, to an effort to end homelessness in Boston. But the foundation recently shifted its emphasis to eating disorders as a result of a family connection to the issue. “It’s an area that’s often overlooked and often sort of seen as a rich kid’s disease, but it isn’t,” says Klarman. “It’s an international problem.”
A personal experience was also the basis for the creation of Hedge Funds Care, a collaborative effort among many hedge funds to prevent child abuse and treat its victims. Hedge Funds Care was founded in 1998 by Rob Davis, whose experience as a teacher early in his career informed the group’s mission. After seeing first hand the effects of abuse in a few of the students in his class, Davis was instilled with the desire to address the problem. Years later, when the high-profile blowup of Long Term Capital Management led to a flurry of negative publicity about hedge funds, Davis saw an opportunity to try to counteract that image by gathering the industry’s participants to fight child abuse and soothe its effects.
“Family and relatives form a natural constituency to support a child with leukemia, but that doesn’t exist for a child who is abused,” says Davis, noting that the problem is usually well hidden. “It’s one of the most important childhood issues that exists, but it’s very low on the list of what gets money.” In the last decade, Hedge Funds Care has grown to include chapters in 11 cities in four countries. In 2006, the group raised $3.6 million to help address the problem. This year, despite the struggling economy, Davis expects that amount to rise to $7 million to $8 million.
Political issues also factor into the causes hedge fund managers support. The primary focus of the Robertson Foundation has been the environment and New York City schools; the organization was able to help create 50 charter schools by partnering with Mayor Michael Bloomberg a few years back. But underage drinking recently moved to the forefront. In 2007, the Robertson Foundation helped form Choose Responsibility, a nonprofit aimed at lowering the U.S. drinking age to 18 while creating more education and supervision for teenage drinkers. Based on the theory that the current 21-year-old drinking age encourages inexperienced minors to go on dangerous drinking binges, the Robertson Foundation approached Middlebury College president emeritus John McCardell to study the issue and ultimately launch the organization.
As hedge fund philanthropies continue to broaden the range of issues they support, as well as their involvement at the board level in many charities, the group’s importance to nonprofits has become significant. In fact, nonprofit professionals estimate that up to 90% of the money raised by charities comes from only 10% of contributors, and hedge fund foundations represent a larger part of that group each year. So, with widespread fears that a recession is looming, and with many hedge fund firms reporting losses or only small gains, charities reliant on these investment managers are growing nervous that the contributions they count on could suddenly shrink. The possibility is real, given that the 5% formula most foundations rely on to determine what they will give away to nonprofits will be drawn from smaller pools if the hedge fund managers supporting them scale back their support. However, because many gifts consist of multi-year grants, if a downturn does occur, it is unlikely to be visible or measurable before the end of 2009.
At this year’s Robin Hood Foundation dinner, held May 27, the room traditionally used at the Jacob Javitz Center was reconfigured to accommodate a slightly smaller turnout than in past years. The event raised $56.5 million, down from $71 million last year. Arpad Busson’s fundraising dinner for Absolute Return for Kids, or ARK, which will be held in London on June 5, was also expecting donations to trail off. After taking in a record £26.6 million ($53 million) last year, the organization was expecting to raise around £15 million this time around. Nonetheless, Busson is not easing up on his charitable efforts. He has plans to throw a comparable event in the United States in the near future.
And then there’s the simple fact that a bad year for leading hedge fund managers is still an unimaginably great year for the average person – a fact Campbell says has led most in the group to consider philanthropy a key responsibility. Says another hedge fund philanthropist: “Most hedge fund guys do well even if they don’t have a good year, so it’s unlikely that giving among the group will turn down much because of the economy.”
TOP 25 U.S. HEDGE FUND FOUNDATIONS (SINGLE DONOR)
|
Rank |
Manager |
Firm |
Foundation |
Total assets |
Gifts received |
Total giving |
|
1 |
George Soros |
Soros Fund Management |
Open Society Institute |
1,315,260,430 |
534,766,904 |
73,809,939 |
|
Soros Economic Development Fund |
139,591,713 |
500,000 |
1,275,000 |
|||
|
Soros Fund Charitable Foundation |
112,388,634 |
NA |
1,917,229 |
|||
|
Soros Charitable Foundation |
90,731,433 |
NA |
4,100,000 |
|||
|
Soros Foundation-Hungary |
41,274,069 |
NA |
10,991,148 |
|||
|
2 |
Julian Robertson |
Tiger Management |
Robertson Foundation |
750,981,022 |
39,494,082 |
37,916,716 |
|
Tiger Foundation |
18,608,109 |
2,240,178 |
7,101,000 |
|||
|
The Blanche and Julian Robertson Family Foundation |
25,510,270 |
7,000,000 |
2,917,343 |
|||
|
3 |
Jim Simons |
Renaissance Technologies |
The Simons Foundation |
477,022,066 |
64,749,656 |
33,017,410 |
|
4 |
Stephen Mandel |
Lone Pine Capital |
Zoom Foundation |
196,635,119 |
23,156,049 |
11,000,000 |
|
Lone Pine Foundation |
16,715,612 |
2,728,095 |
3,030,078 |
|||
|
5 |
Boone Pickens |
BP Capital Management |
T. Boone Pickens Foundation |
189,000,000 |
155,250,000 |
120,429,754 |
|
6 |
Keith Campbell |
Campbell & Co. |
The Keith Campbell Foundation for the Environment |
161,940,951 |
30,000,000 |
7,761,087 |
|
7 |
Robert W. Wilson |
The Robert W. Wilson Charitable Trust |
154,579,374 |
39,515,552 |
76,629,647 |
|
|
8 |
Leon Cooperman |
Omega Advisors |
The Leon and Toby Cooperman Family Foundation |
151,356,950 |
NA |
3,699,025 |
|
9 |
Seth Klarman |
Baupost Group |
Klarman Family Foundation |
105,785,752 |
29,000,310 |
7,415,183 |
|
10 |
Art Samberg |
Pequot Capital Management |
Samberg Family Foundation |
92,631,241 |
10,505,396 |
4,559,486 |
|
Pequot Capital Foundation |
3,939,179 |
29,475 |
509,336 |
|||
|
11 |
Jeffrey Vinik |
Vinik Asset Management |
Vinik Family Foundation |
81,067,746 |
20,000,000 |
3,994,516 |
|
12 |
Jonathon Jacobson |
HighfieldsCapital Management |
The Jacobson Family Trust Foundation |
76,161,486 |
3,508,047 |
4,390,807 |
|
13 |
Mark Kingdon |
Kingdon Capital Managmenet |
Mark and AnlaCheng KingdonFund |
69,584,056 |
9,767,958 |
3,470,014 |
|
14 |
David Tepper |
Appaloosa Management |
David TepperCharitable Foundation |
64,846,168 |
7,695,304 |
2,530,300 |
|
15 |
Bruce Kovner |
Caxton Associates |
The KovnerFoundation |
55,582,699 |
15,747,600 |
10,640,000 |
|
16 |
Mario Gabelli |
Gabelli Group |
GabelliFoundation |
38,542,004 |
1,406,533 |
1,383,000 |
|
17 |
Alan Slifka |
Halcyon Asset Management |
Alan B. SlifkaFoundation |
33,261,874 |
23,000,000 |
510,077 |
|
18 |
Louis Bacon |
Moore Capital Management |
The Moore Charitable Foundation |
27,330,868 |
2,800 |
3,998,200 |
|
19 |
Robert O’Shea |
Silver Point Capital |
The O’Shea Family Foundation |
23,781,930 |
12,084,858 |
637,910 |
|
20 |
Glenn R. Dubin |
HighbridgeCapital Management |
G&E DubinFamily Foundation |
22,411,591 |
10,087,962 |
1,093,712 |
|
21 |
Raymond Dalio |
Bridgewater Associates |
The DalioFamily Foundation |
20,434,063 |
NA |
4,891,925 |
|
22 |
Dan Benton |
Andor Capital Management |
Andor Capital Management Foundation |
20,012,138 |
20,012,138 |
2,467,174 |
|
23 |
Paul Singer |
Elliott Associates |
The Paul Singer Family Foundation |
18,413,756 |
143,974 |
1,627,350 |
|
24 |
Israel Englander |
Millennium Management |
Englander Foundation |
17,655,628 |
17,361,707 |
8,780,043 |
|
25 |
John W. Henry |
John W. Henry & Co. |
John W. Henry Family Foundation |
14,779,509 |
500 |
929,650 |
|
Total assets |
4,627,817,440 |
1,079,755,078 |
459,424,059 |