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Amid Market Turmoil, Hedge Fund Charity Donors Demand Results

Jan. 12 (Bloomberg) -- Martin Ward, a teacher at a London experimental school called the Evelyn Grace Academy, is pitching Arpad Busson on a new idea for getting poor kids interested in science. The charity that Busson leads, Absolute Return for Kids, or ARK, is a sponsor of Evelyn Grace to the tune of 2 million pounds.

Ward wants to buy a used ice-cream truck and turn it into a mobile science lab so that kids at cash-strapped schools around London can do hands-on experiments. Busson, who runs fund-of-hedge- funds firm EIM SA, asks a few questions and confers with a colleague. “Itís done,” he says. “You’ve got it. We’ve found the money.”

Busson and other hedge fund moguls are a force in global philanthropy. In the past decade, hedge funds and private equity firms have emerged as some of the biggest and most-visible donors to charities in Europe, the U.S. and around the world. The money they spend on U.K. and New York schools and to fight AIDS in Africa and India almost always comes with strings attached.

“Weíve got a new generation of philanthropists who are very driven by results,” says Julian Lob-Levyt, executive secretary of the Geneva-based GAVI Alliance, a coalition of nonprofits that in 2006 raised $1 billion in a bond sale to finance immunizations for 160 million children in developing nations. “One question they ask is, ‘How can we get these hard-fought dollars to work harder?’”

London-based ARK has raised and given away more than 100 million pounds ($150 million) since 2002. George Soros of New York- based Soros Fund Management LLC donated more than $500 million to nonprofits around the world in 2008 alone, according to his office.

The New York-based Robin Hood Foundation, founded by Paul Tudor Jones of Tudor Investment Corp., raised $56 million at its celebrity-packed dinner and auction in 2008. And in 2007, Blackstone Group LP co-founder Peter G. Peterson endowed a new foundation with $1 billion after his private equity firm sold shares to the public.

In the U.K., the most generous donor to charity, according to a 2008 Sunday Times ranking, is Chris Cooper-Hohn (formerly Hohn), the son of a Jamaican car mechanic. Cooper-Hohn, 42, runs The Childrenís Investment Fund LLP, or TCI, a hedge fund that in 2007 alone donated 320 million pounds plus investment gains of 125 million pounds to the Children’s Investment Fund Foundation, or CIFF, run by his Harvard-educated wife, Jamie Cooper-Hohn.

TCI is one of many hedge funds that will likely have less money to give in 2009. ARK may also suffer from the market turmoil.

Even so, Busson can call on hedge fund managers that have done well and donated in the past, including Michael Platt of London- based BlueCrest Capital Management, John Paulson of New York-based Paulson & Co. and Alan Howard of London-based Brevan Howard Asset Management. Bloomberg LP, parent of Bloomberg News, is an ARK donor.

Busson, 45, traces his interest in charity to his work in the 1980s when he was searching out hedge fund clients for Tudor Jones, who launched the Robin Hood Foundation, and the gala that helps fund it, in 1988. Since then, the charity has raised more than $700 million to tackle poverty in New York.

Busson, Cooper-Hohn and other hedge fund philanthropists demand that recipients of their grants produce measurable results. In the U.K., they look for guidance to London-based New Philanthropy Capital Inc. NPC, formed in 2002 by a group of Goldman Sachs Group Inc. bankers, rates charities in the same way that analysts rate companies.

So far it has issued assessments of 500 charities, and the buzzwords in its reports -- metrics, risk assessment, return on investment -- are familiar to anyone in finance.

Bussonís search for charities with impact led him in 2002 to NPC, which steered ARK to Hope and Homes for Children (HHC), a nonprofit that was emptying orphanages in Romania. The institutions held thousands of orphaned and abandoned children during the communist era and are notorious for neglect and abuse. ARK gave HHC 1.5 million pounds, with a pledge of more if the Romanian project showed results.

ARKís partnership with HHC has helped close 13 institutions and transfer more than 1,700 children in Romania, Belarus, Bosnia and Bulgaria to their own families or to foster homes or group residences that house 8-10 children.

“When I saw kids walking around like zombies and so skinny, it reminded me of a concentration camp,” Busson says. “I come back a year later and see these kids transformed -- in a house, properly dressed, properly fed -- and theyíre starting to interact and not banging their heads against a wall. That’s what it’s about.”

In 2003, the ARK board, in consultation with NPC, took on a more ambitious project: helping to curb the AIDS epidemic thatís decimating sub-Saharan Africa. In May 2003, ARK board members -- Kevin Gundle, co-founder of investment firm Aurum Funds Ltd.; Jennifer Moses, a former Goldman managing director; Ian Wace, co- founder of London-based hedge fund firm Marshall Wace -- along with ARK patron Giancarlo Garuti, traveled to South Africa, where ARK says more than 1.2 million children have been orphaned by AIDS.

They met with Ashraf Grimwood, then the director of the South Africa HIVAC Medical Research Council and now head of ARK South Africa. “He convinced us that the best thing we could do for children was to keep their mothers alive,” Moses says.

ARK sent teams of doctors and nurses into black townships to set up clinics and get HIV-positive mothers on antiretroviral drugs. The charity now supports about 550 medical workers in South Africa who in March had more than 50,000 mothers, children and other patients under treatment for AIDS.

“Weíve become, in five years, the largest AIDS treatment provider in South Africa,” Busson says.

Jamie Cooper-Hohn has forged alliances with other foundations, particularly the William J. Clinton Foundation, for which it is the largest single donor, and the Bill & Melinda Gates Foundation. One 2005 grant has had a big impact. CIFF, with the Clinton Foundation, invested 3.7 million pounds in a program to provide antiretroviral drugs to HIV-positive African children.

“Itís a business,” says Alec Reed, the 75-year-old founder of The Big Give, a London-based Web site that in 2008 registered 5,000 charities looking for financing. “Philanthropy has become a sexy subject now, thanks to hedge funds.”

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