Philanthropy
UK Philanthropist Reinvests Donation into His Own Hedge Fund - Report

Virtually all the £800 million ($1.57 billion) endowment built up by Christopher Hohn, the activist hedge fund investor, to fund philanthropic causes has been reinvested back in his own funds, analysis of recently filed accounts reveals, according to the Independent newspaper.
Despite the huge assets of Mr Hohn's charitable foundation, only £11.7 million was last year spent on charitable activities, the biggest single disbursement being to the William Jefferson Clinton Foundation's HIV/Aids initiative. Mr Hohn's charity, the Children's Investment Fund Foundation (CIFF), lists 18 disbursements on its website, bringing the grand total of commitments to £34.6 million.
According to the accounts, £767 million of the market value of the foundation's endowment is represented by a holding in The Children's Investment Fund, Mr Hohn's hedge fund business.
Mr Hohn, 41, has been reported as giving sums to charity that "dwarf" previous donations and hark back to the Victorian traditions of philanthropy. Mr Hohn is a trustee of the foundation, as is his wife, Jamie Cooper-Hohn, who is also its chief executive.
A spokesman for CIFF said that the foundation paid no management fee for its participation in the hedge funds and was free to take its money out at any time. Other high performance investment alternatives charged fees and typically involved "lock-ins".
He said it was hard to imagine an alternative investment strategy that would have created as much value for the foundation. Despite reports that the fund's performance has stalled in the recent financial turmoil, the spokesman said the foundation was "very happy" with its current investment strategy.
The reason the foundation, which aims to deliver large-scale, long-term transformational advances for children, has grown so large is because of the 50 per cent per annum compound rate of return Mr Hohn's fund delivers. In the accounts, the trustees are reported to be "fully satisfied with the current investments and their allocation".
The Children's Investment Fund, one of the most aggressive investment activists on the corporate scene, was set up in 2004 for the specific purpose of funding the foundation.
The spokesman said that the apparently low level of disbursements was explained by the fact that it is logistically difficult to donate such a large endowment in an effective manner. The foundation hoped to announce two $50 million donations this summer. He stressed that it was important that the still relatively young foundation spent its money wisely in a manner which delivered clearly defined objectives, rather than throwing it down the drain, as with some non-government organisations.
A spokesman for the Charity Commission said that following recent meetings with the trustees, it was satisfied that there were plans in train for substantial disbursements.
A third of the fund's investment management fees are contracted to go to the foundation, together with a further third if the fund returns more than 11 per cent. More importantly, the foundation also receives the fund management group's entire 15 per cent "carry", or bonus on investment performance, once other partners and staff have taken their cut.
To date, virtually all these monies have been reinvested in the hedge fund.
Last year, CIFF Trading, a subsidiary of the foundation, received a profit share of £276 million from the fund. In addition, the foundation received £126 million in investment gains. Subsequent to receiving the money, CIFF Trading made donations to the Foundation under Gift Aid of £276 million. Typically, charitable donations can be offset against tax.
Mr Hohn is said in notes to the accounts to be the manager responsible for some of the foundation's investments. Neither he, nor any other trustee, are paid anything for their work for the foundation.
It is unusual for the investments of charities to be heavily concentrated with a single fund management group. Making it doubly unusual is the fact that Mr Hohn, one of five trustees, is also responsible for managing the money. The foundation is none the less in full compliance with Charity Commission rules and believes strongly that no principle of good corporate governance has been breached.
Unlike many high performance hedge fund managers, Mr Hohn lives comparatively modestly, with no private jet, yacht or any of the other usual accoutrements of the super-rich.
One defender says that the defined purpose of his investment activities – to improve the lot of deprived children – is absolutely genuine, and warns that criticism of money-making for philanthropic purposes only creates disincentives to such activity. "This is no marketing gimmick."
The accounts detail additions to the foundation last year of £335 million and investment gains on the existing endowment of an astonishing £126.4 million. Despite the growing size of the "expendable endowment", it generates only negligible income, again unusual for a charity.
Since founding The Children's Investment Fund five years ago, Mr Hohn has become known as one of Britain's most aggressive activist investors, having helped to bring about the break-up of ABN Amro, the Dutch bank, as well as the departure of the chief executive of Deutsche Borse, the Frankfurt stock exchange. More recently, he has been involved in acrimonious proxy battles with CSX, the US railroad company, and J-Power, one of Japan's biggest power utilities.