Britain’s Big New Philanthrocapitalist

British hedge-fund philanthropist Chris Cooper-Hohn and his wife Jamie have just announced another huge gift – of £495m ($812m) – to the Children’s Investment Fund Foundation (CIFF), as Matthew has reported in The Economist. This took the assets of the foundation, which they created in 2003 to receive and give away a slice of the management fees and profits of Chris’s hedge fund, TCI, to just over £1.5 billion at the end of their 2008 financial year in August.

This remarkable growth shows the strength of what has become known as “the TCI model” of philanthropy, namely that when hedge funds succeed they can generate spectacular amounts of money which can be recycled quickly into doing good through an associated foundation. Some variant of the TCI model is increasingly in vogue, among private-equity as well as hedge-fund managers – to put lipstick on a pig, say the cynics, or (more optimistically) reflecting the commitment of these successful people to give back, and the realisation that giving will be a lot less of a wrench if it is built into the fund from the start rather than left until after the money is in the bank.

CIFF’s recent experience also shows the importance of diversifying the management of the money away from the hedge fund once it has been generated – something that CIFF did relatively recently, though happily just in time. During the recent market meltdown, CIFF’s now well-diversified investment portfolio is believed to have lost only 10% of its value (pretty impressive in an investment industry where -20% is regarded as the new in-the-black). As Felix Salmon notes in his blog, money-making wise, Chris Cooper-Hohn had a miserable year, TCI reportedly losing 43% if its value in (calendar year) 2008. Apparently Britain’s Charity Commission encourages conservative investment strategies of the sort now deployed by CIFF – an aversion to risk that has not gone down well with the country’s hedge fund philanthropists in the past, but now looks entirely right.

As we write in the book, there has been some criticism of CIFF for not putting the money in its endowment to work fast enough. That is probably unfair on the Cooper-Hohns, who after all are only just starting their philanthropic lives, and are doing so at an age (around 40), at which until recently hardly anyone would have thought of creating a big foundation. Moreover, their approach to giving is to pick big projects that have the potential to drive “transformational change”. Such gifts take time to get right. Nonetheless, in 2008 CIFF is believed to have paid out around 4% of its endowment at the start of the year – not far below the 5% required by law in America. There is no minimum required payout in Britain. Within a couple of years, the Cooper-Hohns expect that CIFF will be giving – or rather, as they put it in classic philanthrocapitalist language, investing – around £100m a year.

Two big recent commitments illustrate this investment philosophy. CIFF has committed $50m over three years in partnership with the Bill & Melinda Gates Foundation, which is putting in $120m, to the Global Alliance for Improved Nutrition (GAIN). The goal is to fortify with essential nutrients the basic foodstuff (rice, fish sauce etc) of poor people in 22 countries. This is expected to have a dramatic effect, improving the diet of 1 billion people and, in particular, sharply reducing maternal and child deaths.

Another commitment is to fund house-to-house testing for HIV/Aids in partnership with the government of Uganda. CIFF’s analysis of the evidence has led it to believe that increasing the percentage of people knowing whether or not they have been infected from the current 6% to 90%, and treating those with HIV/Aids, will actually save money – particularly by reducing transmission from mother to child.

Both of these gifts are designed to be investments that will flip the system into a far better equilibrium, not merely alleviate symptoms. Obviously, it remains to be seen if they will succeed, which will depend in part on how good the Cooper Hohns are at executing their big ideas. But wish them well. At a time when hedge funds are under fire (largely unfairly, in our view, but that is another story), it is great to see that at least one of them is helping to build a better world.