Greenwich Roundtable | Contemporary Philanthropy

11/29/2006

The Commonfund Institute underwrote this year’s session, featuring guest speakers Bill Gates Sr. of the Bill and Melinda Gates Foundation and Christopher Hohn of the Children’s Investment Fund.

Ten years ago, Chris was successful enough at a U.S. hedge fund that he did not need to work anymore. “I thought about retirement but decided instead to start a fund in 2004 and name it The Children’s Investment Fund (TCI), to inspire other wealthy people and hedge fund managers to think more about philanthropy.” The model was new and unusual; many potential investors scoffed at the idea to contractually commit half to one percent of assets to a charitable foundation. “Investors questioned us when we started the fund,” he said. “Many didn’t like the idea, didn’t like the name, or didn’t like the fee structure – even though it was the same fees that we would charge anyway.” Chris was nevertheless determined and has managed to find a balance that is nothing short of amazing. TCI has returned $6 billion in profits to investors over three years and compounded at 40% net of fees. The foundation has grown enough to make a meaningful impact on the lives of impoverished children in developing countries. Much of their work has focused on HIV/AIDS.

Chris’s philosophy about investing carries over to his philanthropic work. “We’re very hard- nosed; we’re very much activists as investors in the public equity markets and the foundation is also very engaged – rather like private equity. We have a very clear value-for-money and results-oriented philosophy. Why developing countries? To us, it was obvious that the returns on investment of philanthropy there were orders of magnitude higher than in developed countries. You could save a life for anywhere between $1 and $100. We felt the returns that were available were super compelling.” Chris emphasized that “there is a difference today.” He cited several examples from the Foundation’s own work, including the funding of anti-retroviral drugs in Kenya and India as “projects which are intelligent and have leverage and scale and effectiveness.”

A slightly different, ‘more traditional’ approach to philanthropy is evident in the work of Mr. Bill Gates Sr., whose notable philanthropic work for the Gates Foundation casually began one night in 1994 when he received the job of managing his son and daughter-in-law’s requests for charitable giving. As Bill Sr. recounted, “that seemed like a good thing for me and a good thing for them.” All of a sudden, about a week later, I heard from Bill. He said, “you know, Dad, I’m going to start a foundation.” What began as a casual solution to address charitable inquiries morphed first into a $100 million foundation in 2000 and after several years had grown to an endowment of $24 billion.

One of Bill Sr.’s key points was that serious, big, philanthropy must be directed. “There was this fundamental principle which has guided us pretty centrally – which is that all lives, wherever lived, have equal value.” As the foundation’s efforts expanded to focus on reproductive health, family planning, the disparity in health delivery between developed countries and poor nations, and the American system of public education, the Gates’ maturity about being philanthropists also evolved. In significant, regular, ongoing philanthropy, where you’re open to being approached by others to finance projects, “you have to not only decide what you’re going to do, but be clear about the negative implication that you aren’t going to do other things.”

Bill Sr. emphasized three other points. First, the foundation is comfortable taking big risks. “We only have to answer to ourselves.” Second, for all of their size, the Gates Foundation is just a drop in the bucket. “Even if you add in Warren Buffet, we still account for something under one percent of all American charitable giving.” Third, Bill Sr. said, “I think the implication is that there is some change that has happened in American philanthropy and that there are these spectacular performers that are showing the way for other people. There’s nothing special about what we’re doing. The notion of trying to identify a cause and identify a way to deal with it is not new.”