February 03, 2010
Charitable Giving, Hedge Fund Style
Posted by Lisa Fairfax

As I have noted in other post, many so-called activist hedge funds engage in charitable giving.  Interestingly, these funds also bring their own management and investment style to their charitable giving practices.  As one article notes, such funds rely on the same kind of rigorous research and strong oversight that they bring to other portfolios they manage.  Hence, the article explains that one fund "uses a private-equity strategy of placing a portfolio manager with each grantee to ensure it extracts the highest return from each programme, measuring the impact on children's health, psycho-social well-being and educational attainment, then 'calibrating' scores against other potential investments."  Is this kind of approach good for charities? 

Apparently some charities find the approach "threatening."  And others have concerns about intentions;  or perhaps they are concerned about whether aggression and charity go hand-in-hand.  And yet, charities are certainly in need of donations, even if they would rather that such donations came with no strings.  Then too, charitable organizations are not immune from charges of mismanagement and self-dealing. Thus, it is certainly not the case that such organizations have perfect management structures.  Perhaps the approach some hedge funds bring will provide, even in a small way, better or more efficient oversight to charitable organizations and projects.  Who knows if that is the case, but it is certainly something interesting to consider.  And of course it also will be important to consider if this management/investment style raises other concerns about which charities should be mindful.  Of course, as this Wall Street Journal story  indicates, the economic downturn has meant that hedge funds have had to make considerable adjustments to protect their charitable endeavors against losses.  Thus, it is likely that the real concern is not about how these organizations manage, but rather about whether they can continue their giving in this current financial environment.

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