Virtually all the £800m endowment built up by Christopher Hohn, the activist investment manager, to fund philanthropic causes has been reinvested back in his own hedge funds, analysis of recently filed accounts reveals.
Despite the now very considerable assets of Mr Hohn's charitable foundation, only £11.7m 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 £34.6m.
According to the accounts, £767m of the market value of the Foundation's endowment is represented by a holding in The Children's Investment Fund Ltd, 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 $50m 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 £276m from the fund. In addition, the foundation received £126m in investment gains. Subsequent to receiving the money, CIFF Trading made donations to the Foundation under Gift Aid of £276m. 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 £335m and investment gains on the existing endowment of an astonishing £126.4m. 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.
One of his rivals says of him: "He's arrogant and belligerent, but there is no doubting his money making skills. All fund managers eventually get their come-uppance, and Hohn has made a lot of enemies. You can't walk on water for ever. But for the time being his returns are spectacular."
The TCI "masterfund", said to have around $12bn under management, returned 41.95 per cent in 2004, 49.66 per cent in 2005, and 38.99 per cent in 2006. Last year is said to have been outstanding too.
However, against the recent backdrop of turbulence in financial markets, even Mr Hohn's performance has suffered. In the first quarter, the fund was down nearly 10 per cent, and in an email which has come to light as a result of recent US court filings, Mr Hohn wrote that the fund could soon be down 15 per cent.
In separate emails, Mr Hohn complained that many of his positions had not been sufficiently hedged.
Donations to the Foundation are made through Mr Hohn's so-called "carry", a standard feature of most hedge funds that entitles the managers to a set proportion of any profits, typically 20 per cent. However, if the fund falls in value, the managers get nothing other than the management fee.Reuse content