The economy is in deep recession, the equity and credit markets continue to struggle, and few philanthropists’ pockets — especially among big-time hedge fund managers — are as deep as they once were. All the good causes supported by the kindness of rich friends and strangers are feeling the bite.
Countless charities have been on the receiving end of hedge fund generosity over the years, some of it noisy and public, much of it quiet and behind the scenes. It makes sense, then, that — as giving diminishes — a good part of the pain that foundations, endowments and nonprofit groups are feeling is in plain sight, and that some is not so obvious.
The New York Metropolitan Opera, supported by scores of wealthy donors — big hedge fund givers like Bruce Kovner of Caxton Associates included — faces budget shortfalls and recently attracted considerable attention for using two murals by Marc Chagall in its Lincoln Center lobby as collateral on a loan. The pieces, each measuring 30 feet by 36 feet, were commissioned for the opera house before it opened in 1966.
In May of last year, as the depth of the credit crisis was just becoming apparent, the annual invitation-only fundraising dinner for the Robin Hood Foundation garnered $56.6 million. It was a whopping sum by any measure. Founded in 1988 by Paul Tudor Jones II of Tudor Investment Corp. fame, the foundation is supported by dozens of hedge fund managers, their Robin Hood dollars going to antipoverty programs in New York City. But the take was down sharply from the previous year, when the event raised $71 million.
Numerous Robin Hood–funded programs — like the Food Bank for New York City — plug away in relative obscurity, noticeable mostly to the people who rely on them for help. It’s a daily effort to keep shelves stocked at the food bank’s 90,000-square-foot warehouse in the Bronx. “I can walk into the warehouse in the morning and it’s full, and by that evening it’s empty,” says Áine Duggan, the food bank’s vice president for research, policy and education.
Duggan says many food pantries are turning people away, though her group has yet to do so, thanks in part to a Robin Hood two-for-one dollar match of up to $3 million in December, a challenge that was met in three weeks. Still, the food bank has seen its donor base contribute less this year than it has in the past, and in general recipients of philanthropy fret about how giving may be hurt by the continuing recession. (Another concern is a proposal by the administration of President Barack Obama to reduce tax deductions for high-end taxpayers.)
Robin Hood executive director David Saltzman says the foundation will try to spread its net wider this year and bring in more donors for its springtime fundraiser. “We will have to appeal to more people than we ever have before,” he says. If any philanthropic hedge fund group can do it, it is this one. The Robin Hood board of directors includes such well-known money managers as Lee Ainslie of Maverick Capital Management, Steven Cohen of SAC Capital Advisors and Glenn Dubin of Highbridge Capital Management. The foundation reported handing out charitable expenditures of $139 million in 2007, the most recent data available.
Of course, hedge fund managers donate enormous sums of money through their own foundations too. In 2007, Cohen gave $12.5 million to the New York Presbyterian Fund and over three years gave $3 million to Stamford Hospital in Connecticut. Most of the $19.6 million that Israel Englander of Millennium Partners promised in 2007 went to Jewish causes, including more than $8 million to Hebrew schools in New York. Texan T. Boone Pickens Jr., founder of BP Capital Management, long known for his big-ticket handouts, especially in his native state, gave $100 million to two University of Texas medical centers.
But times are much tougher now. The Center on Philanthropy at Indiana University reports that the total value of gifts of $1 million or more made by individuals fell by 33 percent in the last two quarters of 2008 compared with the same period in 2007.
One nonprofit feeling the pinch is the UJA-Federation of New York, a Jewish provider of social services that include education assistance, elder programs and immigration aid. The federation, which supports more than 100 community organizations, in recent weeks has seen a 40 percent increase in requests for food assistance (the UJA typically helps feed 130,000 people daily) and in appeals for legal aid for assistance with foreclosures and evictions. Stuart Tauber, UJA senior vice president for financial resources development, notes that many of the hedge fund managers who support the cause, including Marc Lasry of Avenue Capital Group, Richard Perry of Perry Capital and Daniel Och of Och-Ziff Capital Management, have maintained or increased their financial support.
“Most hedge fund managers have shown remarkable resiliency in their giving,” Tauber says. Still, UJA’s annual Wall Street dinner raised $18.8 million in December, down from $21.6 million in 2007.
Hardship is an issue almost everywhere. Chicago-based Citadel Investment Group canceled its holiday parties this past year and instead gave $250,000 to food banks in Chicago, New York and London. The Greater Chicago Food Depository, the local recipient of Citadel’s help, has had a 33 percent increase in demand for services from its 600 member pantries, soup kitchens and shelters, much of it driven by requests from first-time suppliants.
Citadel founder Kenneth Griffin and his wife, Anne Dias Griffin, have gotten their names in lights for donating $19 million to the Art Institute of Chicago, where the Anne D. and Kenneth C. Griffin Great Court in the Modern Wing is due to open this May. But they’ve also written less-noticed checks to other local projects. After corporate sponsors pulled support for Chicago’s bid for the 2016 Olympics, the Griffins stepped in. A Citadel spokesperson would say only that the amount given was from $500,000 to $1 million and that — although Citadel had an awful year in 2008 — the couple remains committed to philanthropy and have just hired a University of Chicago Ph.D. to help manage their giving.
London-based Absolute Return for Kids, founded in 2002 by a group of hedge fund managers that includes Arpad Busson of fund-of-funds EIM SA, has noted that its fundraising dinners now contribute a smaller proportion to its budget. The group supports HIV/AIDS treatment for children in Africa and other health-related programs for young people. ARK managing director Paul Bernstein says that difficult times have spurred the organization to redouble its efforts at diversifying its income sources.
University endowments have been hit hard by the downturn, some of them suffering additional losses through their association with Bernard Madoff. Long Island–based Stony Brook University, part of the State University of New York, lost $5.5 million in the $64.8 billion Madoff Ponzi scheme. Its salvation has come in part from James Simons, the former Stony Brook mathematics professor and founder of hedge fund firm Renaissance Technologies Corp. Through the Simons Foundation, which is run by Simons’ wife, Marilyn (a Stony Brook graduate), the university last year received a multiyear $106 million commitment. Of that amount, $77 million will finance the creation of the Simons Center for Geometry and Physics.
The godfather of all hedge fund giving is George Soros, who started building his philanthropic empire in 1984 and is estimated to have given away $6 billion over the years. But many other managers have established foundations, among them, John Griffin’s BlueRidge Foundation New York; Stephen Mandel’s Zoom Foundation and Lone Pine Foundation; Christopher Hohn’s Children’s Investment Fund Foundation; the Dave Tepper Charitable Foundation; and the TomKat Charitable Trust, founded in 2006 by Tom Steyer of Farallon Capital Management and his wife, Kat Taylor.
Hedge fund giving seems to have certain idiosyncrasies.
“A lot of hedge fund managers evaluate philanthropy similarly to how they evaluate their investments,” says Brent Burns, a San Franciso–based senior philanthropy adviser for the New York–based Environmental Defense Fund, whose board members include hedge fund managers Stanley Druckenmiller of Duquesne Capital Management and Julian Robertson Jr. of Tiger Management Corp. Investment-speak tends to find its way into the charitable work of some managers — terms like return on investment, benefit-cost ratio and portfolio. Hedge fund managers are big on measurement too: Robin Hood gives only to programs that can calculate results.
Hedge fund philanthropy and its many recipients have faced difficulties before. Steven Lawrence, senior director of research at New York–based nonprofit Foundation Center, recalls that the bursting of the technology bubble earlier this decade served up tough but valuable lessons. After six years of double-digit growth in assets and giving, that downturn hit foundations hard. Many had made long-term commitments and had to scramble to honor them after asset values dropped. The upshot: Most foundations grew much more cautious about managing their grant budgets and are probably better prepared to face this crisis because they have spread their giving out over three to five years. “It ensures you’re not going to see big year-to-year fluctuations based on how their assets performed in just one prior year,” Lawrence says.
In other words, foundations and endowments now hedge their bets more than they used to.
They still worry, though. The UJA-Federation’s Tauber is confident donors won’t abandon the organization, but he admits to being concerned about what lies over the horizon. “We’re all watching with a certain sense of trepidation,” he says.
