Hedge Funds Write the Rulebook in Philanthropy

Think that Bill Gates and the dot-commers are going to be the major drivers of philanthropy in the coming decades?

Consider this, then: In 2003, the biggest family foundations created by hedge fund managers was $360 million. In 2005, it jumped to $1.6 billion. About $1.3 trillion is currently invested in hedge funds. Hedge funds trade more each day than most companies make in a year, and the boom shows no signs of busting.

With this kind of wealth, hedge funds are writing the new rulebook in the philanthropy game, and, for better or for worse, charities that don't study the new rules will get left in the cold in the 21st century. What are the new rules?

1. Performance must be measurable. Whether the philanthropy is nonprofit or for-profit, hedge fund philanthropists like quantifiable results. Charities like the Global Fund, which uses a performance-based model and sets tangible targets, do well. Charities with a vague mission and no metrics lose.
2. Take risks and take on debt. On the financial side, the new kids on the board like to run a charity the way they run their hedge funds. Greater risks yield greater returns.
3. Spare no expense in fundraising. From Bill Clinton to Prince, no star is too big to make an appearance at a hedge fund charity fundraiser. This kind of lavish fundraising rankles some of the old guard in the nonprofit world, but the hedge fund executives are calling the shots.

Some of the prominent hedge fund philanthropic organizations that are shaking up the field: Robin Hood Foundation, Hedge Funds Care, A Leg to Stand On (ALTSO), High Water Women, 100 Women in Hedge Funds, and, in Europe, Absolute Return for Kids (ARK).