By Neil Wilson
While bankers bore the brunt of the public’s wrath after the financial crisis of 2008, hedge fund people have not gotten off scot-free. They are still widely viewed with suspicion-as people who are often fabulously wealthy but not deserving of it, as people who are making money at the expense of others in a zero-sum game.
And if you think the reputation of hedge fund managers is questionable within the United States, it is often a lot worse in continental Europe. To many Europeans, hedge funds represent everything that is big, bad and dangerous about the capitalist world.
The industry seems to have found it difficult to deliver a positive message about its role in the economy-how, for instance, it enhances the efficiency of markets-which is understandable, as it is a complicated story to get across to the public.
But one might have thought hedge funds would be more successful improving their image via the large-scale and sometimes highly conspicuous philanthropic efforts that many people in the industry engage in.
Hedge fund managers, either individually or in groups, have for many years been prominent in supporting charitable causes. Industry legend George Soros, for instance, has set a strong example via his Open Society Foundations, and he has a genuine claim to being among the greatest philanthropists of all time.
Many other leading managers have their own foundations and endowments or contribute to industry-wide groups like the Robin Hood Foundation in the United States or Absolute Return for Kids (ARK) in Europe. Robin Hood and ARK may be the biggest of these groups, but there is a long list of others as well, such as 100 Women in Hedge Funds and Hedge Funds Care, plus events that raise money from the industry for other charities, such as a dinner held by the Prince’s Trust, headed by Prince Charles in the UK.
One might have thought that such efforts would garner some degree of approval, if not admiration, among the public. But even this is not always the case. As Simon Rostron, a veteran of public relations in the industry with London PR firm Rostron Parry, wryly noted during a panel session at the InvestHedge Forum in London: “If an arms dealer or pornographer makes huge charitable donations, he will still be viewed as an arms dealer or pornographer.”
At the forum there was at least a vigorous debate about whether the industry’s image problem is just a PR problem or something more fundamental-assuming that a PR problem in itself is not a pretty fundamental problem. Lucy Heller, the head of ARK Schools, made the excellent point that in some circles, and especially in Europe, money and wealth are simply not acceptable. She was pessimistic about whether the image could be improved, with ignorance about the industry still prevalent. As Heller put it: “We’re damned if we do and damned if we don’t!”
During some lively exchanges with delegates from the floor, one piped up to say that the image of ARK itself might be improved if it was seen as less synonymous with Arpad “Arki” Busson, head of EIM and ARK’s founding chairman, whom the speaker described as “frankly, more flashy” than he and many others in the industry felt comfortable with. While this comment provoked laughter, it also highlighted that some of the other leading figures in ARK have probably been quite happy for Busson to play the front man who takes the limelight, while they remained more in the background.
What this shows to me is that although many charitable efforts are no doubt meaningful and effective and should certainly be encouraged, there is not necessarily one right way to go about giving. One way, for instance, is that of ARK’s new chairman, Ian Wace, co-founder of Marshall Wace. Wace has been active with ARK since its foundation and has been keen throughout to be seen setting a strong example to others in the industry to take their responsibilities to society seriously.
On the other hand, there are many others in the business who contribute a lot, either through ARK or their own independent efforts, but prefer to do so quietly and privately. That also seems a perfectly reasonable approach to me.
Either way, as ARK’s Heller pointed out, industry philanthropists still run the risk of being characterized as providers of “blood money.”
So, while the industry’s various charitable initiatives can and no doubt will continue to make a positive contribution, only when the wider public appreciates the economic value of hedge funds-how they enhance the functioning of capital markets, deliver value for investors and generally behave as responsible corporate citizens-will the industry decisively overcome its continuing image problem. AR