A hedge fund for the children

Stephen Beard Jun 21, 2007

A hedge fund for the children

Stephen Beard Jun 21, 2007


Tess Vigeland: The private-equity industry got an earful in London yesterday from lawmakers there who think they don’t pay enough tax. Well, they’re not the only ones feeling the heat in Europe. Other largely unregulated investor groups, like hedge funds, are also drawing fire. One German politician called them “locusts.” He said some of the more active funds will sell a company or a currency short just to rip it to pieces.

But one London-based hedge fund has largely escaped criticism, despite its fearsome reputation. Marketplace’s Stephen Beard has more from the British capital.

Stephen Beard: What can you say about an aggressive hedge fund which calls itself “The Children’s Investment Fund,” and puts a percentage of its earnings into charitable works?

Andrew Hilton: I think it makes wonderful sense as a marketing ploy.

That’s the skeptical response from economist Andrew Hilton. Others, like Paul Palmer of the Cass Business School, are more trusting:

Paul Palmer: I don’t think it’s a marketing ploy. It would be very hard to see how a hedge fund would be claiming that somehow, it’s winning a competitive advantage by giving some of its funds away.

The Childrens Investment Fund, or TCI, was set up three years ago. It now has around $7 billion under management. From the outset, the managers donated at least a half of 1 percent of the fund each year to help poor and sick kids in the developing world.

Good for them, says Palmer:

Palmer: At least these people are doing something. And although there is a cynical view out there, at least they are doing something rather than just thinking about it or talking about it.

But TCI has benefited from the charity. Hedge funds, like their private-equity cousins, are often unpopular for shaking up and breaking up companies.

And yet, the TCI has enjoyed a better press than some of its rivals, says Andrew Hilton:

Andrew Hilton: It’s a little bit difficult to kind of knock something that has, at its foundation, a commitment to charity. Even though in fact it’s just as aggressive, just as predatory as any of its competitors.

TCI is pushy, to say the least. It led the attack on the Dutch bank ABN-AMRO, triggering a massive transatlantic battle. In a separate move, the fund forced the head of the German Stock Exchange to quit.

But, claims Norma Cohen of The Financial Times, the fund’s managers are not just cold-blooded financial predators.

Norma Cohen: One of the things that I think they were most proud of is having funded the development of anti-retroviral drugs that are small enough to be taken by children.

The fund has raised well over $100 million for children with AIDS in Africa and India. Cohen believes that the hedge fund does profit from the charity, but in an unexpected way.

Cohen: It has enabled them to attract very talented fund managers who want to feel that they are, you know, at the same time they’re making money for clients, that they’re also raising money for a good purpose.

Both the hedge fund and the charitable foundation refused to talk about their work. Not surprising, says Cohen:

Cohen: That is not uncommon among hedge funds who do not advertise to the public, do not collect funds from the public.

But critics of hedge funds say this lack of transparency is the problem. More funds are becoming more activist, wielding huge power without the authorities knowing too much about them. For all its good works, even the Children’s Investment Fund is facing calls for tighter regulation and more disclosure.

In London, this is Stephen Beard for Marketplace.

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