Hedge funds get the bug for benevolence
Their glittering fundraisers in London and New York have broken all records for charitable giving, but the latest masters of the financial universe are not content just to write the cheques - they want to see results
By Danny Fortson
Published: 20 May 2007
The music would have made Sir Mick Jagger proud, even if the crowd left something to be desired. As The Hypothecators belted out "Brown Sugar" on a stage in central London one evening last week, a solitary couple took to the dance floor. Despite their earnest cajoling, none of their fellow music connoisseurs joined in, content instead to engage in a bit of understated foot-tapping and beer-sipping. They might have been more enthusiastic. They had, after all, paid £125 apiece to hear a line-up that also included The HixVille Six, The Subscribers, The Systematics, and to close out the night, The Activists.
As the nerdy names imply, a typical music gig this was not. The event, held at Café de Paris just off Piccadilly Circus in the centre of London, was the Mayfair Hedge Fund Rock Benefit, the brainchild of American hedge fund manager and philanthropist Mead Welles. The entertainment was not provided by hardcore rockers, but rather by bands comprised exclusively of hedge fund industry professionals. Sporting a pair of kitsch Union Jack socks and nursing a Kronenbourg beer "backstage" before going on with his band, The Subscribers, Mr Welles said he hoped the evening would net at least $50,000 (£25,000) - it ended up bringing in $120,000 - for A Leg to Stand On, a charity that he founded to help disabled children in developing countries.
"We [hedge fund managers] get hit up for money left, right and centre. It's frustrating. You don't know who you should give to. This is about getting people to a comfortable place where they can learn more about the cause. If they want to become a donor, great," Mr Welles says.
It may have been a light-hearted affair, but targeting these new Masters of the Universe has become very serious business, attracting no less than Bill Clinton. The former US president swept into London for one night earlier this month to give the keynote speech to a room of 1,200 hedge fund managers assembled for a black-tie affair at Marlborough House in St James's. Madonna also spoke, and the rock star Prince brought down the house with an hour-and-a-half set. Before the night was out, Mr Clinton had received an $8m check from the assembled millionaires to launch an initiative for HIV/Aids in Mozambique in partnership with ARK, or Absolute Return for Kids, the charity started by the London-based hedge fund manager Arpad Busson.
All told, the event raised £26.6m, the most successful single fundraising event ever in the UK. Just two weeks earlier at a similar event in New York, the Robin Hood Foundation, started by hedge fund veteran Paul Tudor Jones, broke all records by raising $71m from hedge fund and private equity executives. Some may be tempted to say that events like the London fundraiser - where guests paid £100,000 per table, and a trip for two to the Oscars sold for £280,000 - is just the most striking example of the excess borne of the incredible boom being enjoyed by the City of London. Yet it also bears out what some assert is something far more significant: the blossoming of a new generation of philanthropists, who are making more money, at a younger age, than previous generations. And by applying the same business principles that made them successful to philanthropy, they are fundamentally changing the face of giving.
"The people creating wealth now are very different. They don't subscribe to the old idea that it must all be kept in the family, which has historically been the case, at least in the UK," says Nick Tucker, head of Global Private Clients at Merrill Lynch. "The old days when charitable giving was arm's length view are gone. It's a lot more scientific. People want to see a return."
The booming financial markets continue to defy sceptics; the Dow Jones index broke through the 13,400 barrier for the first time in its history last week, while the FTSE 100 has been flirting with the all-time highs reached at the end of the past decade. The result is a deluge of new wealth, with those at the top of the financial world's food chain pocketing outlandish sums. The top 25 hedge fund managers, for example, earned $14bn between them last year, an average of about $570m each. City bonuses have quintupled to a total of more than £8.7bn over the past decade. Private equity executives have enjoyed an unprecedented run of multi-billion-dollar returns.
Arpad Busson is a prime example of this new breed. Head of EIM, an $11bn fund of hedge funds, he started ARK five years ago. The charity focuses on three main areas: HIV/Aids, education and residential care for children. Its costs are completely covered by a core set of donors so that 100 per cent of donations go to its projects. Rather than investing in other charities, ARK sets up and runs its own programmes, which are rigorously followed up and reported on.
"ARK's guiding principles are measurability and accountability. As a charity you can't just take the money and not be transparent," Busson explains. "Charities should be just as accountable to their donors as businesses should be to their shareholders."
Nearly 15 per cent of the £8.7bn donated to charity in the UK last year was given by the 30 most wealthy individuals, nearly triple figure for the year before, according to the Charities Aid Foundation. While such a development is clearly welcome, it will undoubtedly ruffle some feathers.
"Charities are having to up their game - these guys that are now giving their money want to see tangible results," says Mr Tucker.
There are 187,000 charities of varying size, scope and quality in the UK today. New Philanthropy Capital, a not-for-profit organisation set up by ex-City bankers to help wealthy individuals sift through that mass, ranks a select few into the top tiers of each sector. That leaves most charities out in the cold when wealthy individuals are writing cheques. However, Harry Charlton, head of client development at NPC, says that the organisation does not give negative recommendations and actually broadens the possibilities of smaller charities that may not have the profile of better-known organisations but stack up just as well. NPC has seen a noticeable increase in demand for its services within the past 18 months, he says.
The Private Equity Foundation, a charity that was set up earlier this year with £5m from firms and individuals in the buyout industry, is another such manifestation. It aims to apply the same principles the industry uses to turn around businesses to the projects in which it invests.
Indeed, even the vocabulary of the City is creeping into the sector, with much talk of "scalability" and "synergies". One source suggests that the wave of mergers and acquisitions fattening the pockets of the City's bankers should be extended to the charities sector: "The philanthropic area is incredibly fragmented... Over time one would hope that there would be consolidation in the sector. Think of the costs that could be taken out."
The largesse is not all down to money, or having more of it. The profile of today's super-rich is changing. Rather than dynastic, old money that, if it was given away, was often done so via a trust or foundation, today's rich tend to be people from more modest backgrounds who "want to see with their own eyes" the effects their cash is having, says Mr Charlton. "A lot of our clients are self-made. They have a different perspective on wealth creation. They want to do it while they are living."
And in this increasingly connected, globalised world, it is hard to ignore the widening gap between those at the very top and those at the very bottom. "We can't just continue with our nice little lives here in London when right on our doorstep, a two-hour flight away, there are orphanages in Romania where children are tied to their beds for 10 years, living in their own excrement, fed only liquids because solid food will be stolen," says Mr Busson. "It's like the gates of hell. How can we not do something?"
Yet for all their good work, this new generation of donors is not without detractors. Indeed, the very lavishness of star-studded events such as that at Marlborough House earlier this month is perhaps the most eloquent expression of the imbalance between those that have so much and those they are trying to help. As one hedge fund manager says: "There's a lot of ego. It's about being able to stand up and just show that you can bid £200,000 for some nonsense."
And it is not all, of course, about simply helping out their fellow man. "It sounds bad to say, but we are all about maximising returns, and your donations mean a tax deduction [in America] as well as meeting a need," says Mr Welles.
Yet as long as the money continues to flow, most are not bothered about the ultimate motivation. As Shaks Ghosh, chief executive of the Private Equity Foundation, explains: "Do I care if [donors] get some good PR from this? I don't think so. It's £5m that would otherwise sit in their pockets that's now going to a good cause. The really interesting question is who are these new philanthropists. Are they the next Gates, the next Carnegie? I hope so."
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