Charities seek to tap into a fast-growing source of wealth
Kenneth C. Griffin courted Anne Dias among the stone sculptures and Impressionist paintings at the venerated Art Institute of Chicago. Happy memories of the museum date that eventually led to marriage prompted the couple — who are both hedge-fund managers — to donate $19-million to the museum for a new wing.
The size of the gift, made in 2005 — as well as the fact that the donors are still both in their 30s — was "extraordinary," says James Cuno, the museum's president. In October, the couple contributed an additional $500,000 to support the museum's forthcoming Jasper Johns exhibit.
Other charity leaders around the country have also noted the avalanche of new wealth being created by hedge funds, whose managers often earn 20 percent or more of a fund's profits, and the growing amount going to philanthropy. In 2005, the 25 biggest family foundations created by hedge-fund managers were worth $1.6-billion, compared with $360-million in 2003, according to Absolute Return, an industry magazine. But wealth-management experts and other people who work with hedge-fund executives say that it could be a long time before a bigger share of the executives' fortunes flow to charities.
"Since many of them are so young, often under 40, they don't have a lot of experience making sophisticated and effective big gifts," says Charles W. Collier, senior philanthropic adviser at Harvard University, which has received donations from hedge-fund managers. "It opens the door to a lot of nonprofits making the case for substantial support, but it also means that nonprofits, their staff, and their trustees are often helping these people get educated about what it means to be effective donors of large sums of money."
The 'Wild West' of Finance
Among the 400 billionaires on the Forbes list of wealthiest Americans last fall, about a dozen made their fortunes from the $1.3-trillion invested in hedge funds, which use a wide range of investments designed to protect, or hedge, against changing market conditions.
More hedge-fund managers seem likely to join the ranks: In 2005, the top 26 managers earned a median of $205-million, meaning that half earned more and half earned less. That was an increase of one-third from 2004, according to Alpha magazine, a publication that covers hedge funds.
And new hedge funds are constantly opening. Today, more than 9,200 are available, compared with 610 in 1990, according to Hedge Fund Research, in Chicago, a company that tracks hedge-fund data and compiles research on the industry.
"The wealth in the hedge-fund universe among the managers is exploding," says Russ Alan Prince, a wealth-management adviser in Redding, Conn., who works with hedge-fund executives. "This is the Wild West of finance today. There is more money being made here than anywhere else in the financial world."
Some of those riches have already translated into multimillion-dollar donations, with several of the biggest gifts last year coming from active or retired hedge-fund managers.
Among them:
Some charity leaders say hedge-fund managers could afford to give away even more. "You see the hedge-fund managers with billions of dollars under their control, and you are not seeing it invested back into the community," says Rex Shaw, director of the Teaneck Community Charter School, in New Jersey. Mr. Shaw, who is trying to raise several million dollars for a new facility, sought significant support from a hedge-fund manager and was unsuccessful in attaining a large gift. The executive, who manages a $6-billion hedge fund, he says, recently contributed $5,000. "We need to embarrass these folks that they are not helping," says Mr. Shaw.
Give them time, says Keith H. Black, an assistant professor at the Stuart School of Business, at the Illinois Institute of Technology, in Chicago, who points out that Warren Buffett was 75 when he announced he would give away much of his wealth while he was still alive.
"It's still kind of early in the game," says Mr. Black, who has written a book on hedge funds. "They have got another 20 years to do what they are going to do and then they might sit down and say, 'Oh, I am mortal, and where do my philanthropic intentions go?'"
Risky Business
However, before charity leaders rush to court hedge-fund managers, industry insiders and some fund raisers advise caution. Not every person who opens a hedge fund becomes wealthy, and a few large hedge funds have folded in past years, often depleting managers' wealth, which is usually tied up in their companies.
In addition, Jay Golan, president of the Birthright Israel Foundation, in New York, which provides free trips to Israel for Jewish young adults to better connect them to their Jewish identity, warns that charities still need to make a compelling case to receive support. The foundation lists several hedge-fund managers among its most-generous donors.
"You can't just go to them with empty pillowcases and say, 'Fill me up,'" he says. "They have to resonate themselves with what you are doing."
Another challenge in reaching wealthy hedge-fund managers: "They tend to be private people," says Robert A. Jaeger, author of All About Hedge Funds and vice chairman of EACM Advisors, a company in Norwalk, Conn., that manages $3-billion in hedge funds. "They don't want people knowing about their lives."
While the boom in hedge funds is creating more fortunes for successful managers, several hedge-fund managers have long been philanthropic.
George Soros, chairman of Soros Fund Management, in New York, has donated more than $6-billion through his network of foundations since 1984. His checkbook remains open: In September, Mr. Soros — who has a net worth of $8.5-billion, according to Forbes — pledged $50-million over five years to the Millennium Promise Alliance, in New York, to improve living conditions in sub-Saharan Africa.
Paul Tudor Jones II, chairman of Tudor Investment Corporation, in New York, has also been a longtime donor. In 1988, he started the Robin Hood Foundation, charity that wants to end poverty in New York, with several friends and colleagues, and he remains involved even as he runs a company that manages $15.4-billion. Since its inception, the charity has awarded more than $500-million toward its goal.
Mr. Jones — who has a net worth of $2.5-billion, according to Forbes — has also given advice and financial support to other industry groups seeking to increase philanthropy, including the 100 Women in Hedge Funds Foundation, in New York, which has raised $10-million since 2003 for national organizations focused on women's issues.
Other hedge-fund managers, like Mr. Jones, have created their own charities.
In 1999, Michael H. Steinhardt, a retired hedge-fund manager, co-founded Birthright Israel.
"When you take a risk and you fund something and you succeed — which you sometimes do, hopefully — the reward there is so much greater than it is by giving a check to an established organization where the money sort of disappears," he says.
A focus on young adults also appealed to Andrew C. Walter and Peer T. Pedersen, managing partners of Blue Orchid Capital, in Greenwich, Conn., who started the Steamboat Foundation in 2003 to offer paid summer internships to a handful of college students to work in one of eight fields, including law, business, and professional sports.
The foundation has received more than $1-million in the past three years for its work.
Aiding New Charities
Helping several nascent nonprofit groups take the steps to become self-sustaining forms the backbone of the Blue Ridge Foundation New York, founded by John A. Griffin, president of Blue Ridge Capital. Since 1999, the foundation has provided money, office space, and management advice to 11 promising groups.
"The notion was that there are lots of good ideas out there, and what does it take for someone with a good idea to pursue it," says Matthew Klein, the group's executive director. "John wanted the flexibility to give as much and as smart support as possible to new ideas that he would also be involved in vetting."
The foundation has awarded $4.1-million in grants since it was founded, and Mr. Griffin also bought and refurbished the 5,000-square-foot Brooklyn loft space that is now home to six nonprofit groups as well as the foundation's headquarters.
Blue Ridge Foundation has reaped success from its comprehensive approach. Its inaugural grantee, iMentor, an online charity created by Mr. Griffin, started by linking 40 financially needy high-school students with 40 businessmen, lawyers, and other professionals. In the past seven years, it has arranged 1,400 similar relationships.
Mr. Griffin still chairs the group and participates in the mentor program, along with several employees of his hedge fund.
Employees of Lone Pine Capital, a hedge fund in Greenwich, Conn., have also joined their founder, Stephen Mandel, in becoming engaged in philanthropy.
The company started a foundation five years ago where its employees contribute money and receive a vote as to where to make donations, says Lucy Ball, the foundation's executive director.
This year, the foundation expects to donate $3-million to local youth, education, and development programs. Mr. Mandel contributes to the group, as well as to his Zoom Foundation, which made grants of $23.5-million in 2005 to environmental and social-service groups, among others.
Connecticut Connection
International social-service groups are the focus of another Connecticut hedge-fund manager, who, along with his business partner, has donated $4-million to donor-advised funds in the past two years.
The pair, who requested anonymity because they don't want to be overwhelmed by requests for support, grew up outside the United States and contribute mostly to charities recommended by family and friends, including Mobile Creche, in New Delhi, which operates child-care centers and advocates for the rights of children. While the fund manager says his business and young family leave him little time to join a charity board at present, he wants to play an active role in his giving.
"We are not going to outsource it," he says. "We want to see it, touch it, feel it sort of thing." The partners currently give away between 5 percent and 10 percent of their earnings, and hope to double that figure in the future, he says.
While hedge funds exist around the country, a concentration of hedge-fund managers either live or work or both in southwestern Connecticut, which has presented an opportunity for local groups.
Last month, Stamford Hospital announced a $5-million gift from the Steven A. and Alexandra M. Cohen Foundation, in Stamford, for a new pediatric center. Mr. Cohen, whose wealth is estimated at $3-billion by Forbes, founded SAC Capital Advisors, also in Stamford.
In addition to their gift, the Cohens hosted a reception at their home last spring for about 70 people, including potential donors.
"I am extraordinarily bullish on the philanthropic spirit of these hedge-fund managers being fully realized,"says Christopher J. Riendeau, executive director of the hospital's foundation.
The Fairfield County Community Foundation, in Wilton, Conn., counts seven hedge-fund managers among its donors, with single contributions ranging from $25,000 to $3.5-million, says Susan M. Ross, the foundation's president.
"It's a pool of donors we have just barely begun to identify and try and determine how we can be of service," she says.
While yesterday's donors might have been satisfied that community-foundation officials knew best how to spend their gifts, hedge-fund donors want to know exactly what was accomplished by their donations, says Ms. Ross.
"We have to be able to present them with philanthropic opportunities that have the kind of result metrics they are going to want," she says. "They are not interested in giving back in a general way."
And hedge-fund donors are not necessarily interested in starting a donor-advised fund at the foundation, because they often prefer to manage their own money, she says. Instead, several donors have made contributions to the foundation's efforts to help women and girls and to improve low-cost housing options. "They are not donors as perhaps would have been common here 10 and certainly 15 years ago," says Ms. Ross.
She adds: "They are really saying, 'Show me how I can make a difference on this issue.'"
Tapping Networks
Geoffrey Canada, president of the Harlem Children's Zone, an organization that serves poor children in New York, says his organization's focus on measuring results helped attract Stanley Druckenmiller, founder of Duquesne Capital Management, in Pittsburgh, to its board — who, in turn, recruited other hedge-fund leaders.
"There is no way I can get folks on that level and in that world connected to the agency without Stan," says Mr. Canada.
Last October, Mr. Druckenmiller contributed $25-million, and Mark Kingdon, president of Kingdon Capital Management, in New York, gave $5-million to the group to expand its efforts. Mr. Canada also credits Mr. Druckenmiller with increasing the group's endowment from a "paltry sum" to its current $53-million total.
"Some people have their little charities — this is not that kind of thing with him," says Mr. Canada. "He is intensely involved strategically, he puts in time and energy into conceptually trying to figure out how we drive our performance, how we create a better program."
A subway ride downtown, leaders of the Lincoln Center for the Performing Arts have also been actively engaging hedge-fund leaders in the center's work.
In 2004, Reynold Levy, the group's president, asked two hedge-fund managers who were already involved with the center to invite their peers to a meeting with Michael R. Bloomberg, mayor of New York" (add a comma after "Bloomberg who founded the financial-data and news-service company that bears his name, is worth an estimated $5.3-billion, according to Forbes, and donates about $140-million to charity a year.
At the meeting, Mr. Bloomberg "expressed his enthusiasm for the joys of giving and what meaning philanthropy could have in their lives," says Mr. Levy. "He suggested that among a number of causes, Lincoln Center would not be a bad place to start."
Since then, the center has held two galas for hedge-fund executives, which have raised about $2-million apiece, says Mr. Levy.
And in December, a select group from the industry were invited by the arts group to a talk given by Bruce Kovner, founder of Caxton Associates, a hedge fund in New York, and a vice chairman of the center. Mr. Kovner, whose wealth is estimated at $3-billion by Forbes, donated $20-million to Lincoln Center last year and $25-million in 2005 to the Juilliard School, one of the center's resident organizations.
Mr. Levy says other charities could benefit from the recent hedge-fund boom as well if fund raisers did more "asking" and less "talking" about how to approach donors.
"There is no indication that this is a fad or a sudden phenomenon that will disappear tomorrow," he says. "Sophisticated nonprofits should be able to know who the 10 largest hedge funds in their community are just like they know the 10 largest realtors or banks or utilities. This is a 21st-century burgeoning industry, and they need to learn it."