Robin Hood Fund Pulls Investments From Hedge Fund Managers

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The Robin Hood Foundation, a giant charity for the poor in New York City, is withdrawing investments in hedge funds managed by members of its board of directors and leadership council, according to a letter to Robin Hood supporters obtained by DealBreaker.
The charity had come under criticism from Washington, DC lawmakers for investing with—and paying fees to—hedge fund managers who also serve on its board of directors. Senator Charles Grassley of Iowa, the leading Republican on the Senate committee which oversees charities, recently expressed his disapproval of the fees paid to board members.
“I don't remember Robin Hood keeping two and 20 as his cut,”' says Senator Charles Grassley of Iowa, the top Republican on the tax-writing finance committee, which also oversees charities.
The charity had invested money from an emergency fund built from donations from its board members with as many as 19 hedge funds. Seven of those funds are managed by board members or members of the charity’s leadership council. Those managers were paid fees of 2 percent of assets and 20 percent of profit for managing the assets.
In a letter to supporters emailed last night, David Saltzman, the charity’s executive director, announced that the charity would no longer invest money with members of its board.
“Although we are totally comfortable with these procedures, as part of our board's ongoing governance review over the past year, and to avoid even the appearance of any conflict, we have decided that none of Robin Hood's leadership will manage these funds going forward,” Saltzman said.
Earlier this week Saltzman had defended the practice as benefitting the charity since the hedge fund managers on its board were leaders in the money management business. Since 1990, the returns after fees had averaged over 17 percent annually, according to Saltzman. Apparently the scrutiny from lawmakers like Grassley has convinced Robin Hood to give up the practice.
Even if the returns for the contingency fund's investments decline, the poor who benefit from the charity's work will no doubt be comforted by the fact all apparent conflicts of interest are being avoided.
After the jump you can read the full text of Saltzman's letter.


Dear Robin Hood Supporter:
Thanks to you, Robin Hood is an anchor supporter of many of the strongest, most effective programs helping New York City's more than 1.5 million poor people build better lives for themselves and their families. With your generosity, we have contributed over $500 million dollars to fight poverty. Our long-term commitment to our fellow New Yorkers who are struggling in poverty: we will be there in good times and in bad.
Every year 100 percent of every dollar we receive from you goes directly to organizations serving the city's poor; that's our commitment to you. To enable that commitment, our board of directors donates funds to cover all of Robin Hood's administrative, evaluation and fund-raising costs.
Over and above the commitment to cover all of these administrative and operating costs, our board has established a fund that enables us to make long-term commitments to organizations that count on us and to deal with emergencies. For example, Robin Hood drew on this fund immediately following the attacks of September 11, 2001, when the demand for services for poor people skyrocketed while much of the funding for those services dried up. More recently, we used this fund to match the extraordinary generosity of donors like you who pledged a total of $20 million to build new public high schools in partnership with the city.
This contingency fund holds in reserve an amount equal to approximately 1 1/2 years worth of program and administrative expenditures. This amount is well below the recommended ceiling of three times the past year's expenses established by the Better Business Bureau and the American Institute of Philanthropy. We believe this fund to be prudent, responsible and in keeping with best practices.
We have invested this fund with 17 top money managers to whom we have paid standard fees for their services. Since 1990, their net returns have averaged over 17 percent annually—more than 50 percent higher than the annual return of the S&P 500 during that same period, with one-third the volatility.
Currently, seven of our 17 money managers serve on Robin Hood's board or leadership council. None serve on our investment committee, which is responsible for the selection and oversight of fund managers.
This note is to inform you of a change in that practice. Although we are totally comfortable with these procedures, as part of our board's ongoing governance review over the past year, and to avoid even the appearance of any conflict, we have decided that none of Robin Hood's leadership will manage these funds going forward. We notified each of these managers of our decision yesterday.
We do so as part of our ongoing commitment to good governance, and also with deep appreciation for the contributions that these managers have made to our fight against poverty in New York. More than 240 programs and schools have benefited from their efforts.
Thank you for saving lives.
Sincerely,
David Saltzman
Executive Director

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