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A hedge fund for the children

Stephen Beard Dec 28, 2007

A hedge fund for the children

Stephen Beard Dec 28, 2007


Tess Vigeland: Think of the word “charity” and the image of a hedge fund manager is unlikely to pop into your head. They make scads of money and faced strong scrutiny this year for their ability to shield that money from many of the taxes the rest of us have to pay.

It’s no different across the pond, but one London-based hedge fund has largely escaped criticism thanks to its charitable image. Our 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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