Robin Hood Foundation's Relationships With Hedge Fund Managers Draw Scrutiny

The New York City-based Robin Hood Foundation is drawing scrutiny from members of Congress who question why nearly half its $144.5 million "rainy day fund" is invested in hedge funds run by Robin Hood donors or board members who are paid the standard industry fee of 2 percent of assets and 20 percent of profits for managing the funds, Bloomberg News reports.

The controversy concerns a separate emergency fund built with donations from Robin Hood's 31-member board, which includes business and financial heavyweights as well as television and entertainment industry leaders. According to the organization's 2005 tax filing, the most recent available, the assets were invested in nineteen hedge funds, seven of which were managed either by a board member or the organization's leadership council, a group of major donors. Robin Hood executive director David Saltzman told the Times that the decision about where to invest is made by a board committee that is not allowed to invest in its members' funds. Between 1990 and 2006, the fund returned an annual average of 17.05 percent after fees, compared with 10.99 percent for the Standard & Poor's 500 Index.

Melissa Popper, director of the Better Business Bureau's New York Philanthropy Advisory service, said her organization had reviewed Robin Hood and determined that it met "our standards for charity accountability." But Art Taylor, president of the BBB Wise Giving Alliance in Arlington, Virginia, expressed reservations. "We would prefer that there were more people involved on the board that were independent of these hedge funds," he said. "You start to wonder what happens in the year that the hedge fund doesn't do well. Does the board have the power to fire the hedge-fund manager?"

When asked about the arrangement, Senator Charles Grassley (R-IA), ranking member of the Senate Finance Committee, said he was concerned that those who make donations to the fund are receiving charitable deductions for money that isn't distributed to the needy. "I'm worried," he said, "that I am seeing more and more that suggests that some hedge-fund and private equity managers view charitable donations as a chance to do well for themselves, and forget it is about doing good for others."

Alison Fitzgerald. "Robin Hood Nest Egg Draws Scrutiny From Congress." Bloomberg News 07/15/2007.