Looking for the silver lining in the current financial mess takes a special breed of optimist. Combine that with a quest to redefine the hedge fund as a force for good and you can start to sound downright quixotic. Ghanaians can easily find out if the drug they bought is legitimate by texting a scratch-off code and receiving instant authentication.
Yet that’s what the founders of New York-based Uhuru Capital Management have set out to do. The firm will manage a conventional fund of hedge funds, but with an attention to social values. What’s more, general partners will direct 25 percent of their profits to help social entrepreneurs scale up efforts in developing markets.
The founders bring solid credentials for both making money and doing good. Peter Kellner, a successful private equity investor, is a protégé of Ashoka founder Bill Drayton and cofounder of Endeavor, a nonprofit that supports high-impact entrepreneurs in emerging markets. And Neal Goldman launched Capital IQ, a financial research firm that was later sold to Standard & Poor’s.
The opportunity to put sustainable investing ideas into practice is what attracted Jed Emerson, Uhuru’s managing director of integrated performance. After years of talking up blended value theory on the conference circuit, he says, “what we really need are more and deeper examples of practice.”
Will wealthy individuals and families warm to Uhuru’s approach? Justin Rockefeller (the youngest son of U.S. Sen. John D. “Jay” Rockefeller IV) is one who showed early support, providing start-up capital and family name recognition.
Uhuru isn’t sharing financial projections, but no one expects the firm to grow to the size of the multibillion-dollar hedge funds. “That level would not be success for us,” Emerson admits. “We’re trying to maximize value. We don’t believe we would be able to manage funds as effectively,” he says, if they mushroomed into the billions.
Uhuru’s timing and smaller is better approach may work in its favor. The firm starts at “the current reset point,” Emerson points out, with no need to recover losses, a problem plaguing many other hedge funds.
“It’s pretty clear we’re at an inflection point in the financial system,” says Tim Freundlich, a partner at Good Capital and senior vice president at the Calvert Foundation. “Everyone’s wondering, how do we come out of this on stronger footing? The commitment up front to sustainability and social responsibility— that’s what they’re leading with [at Uhuru]. In the hedge fund world? There’s been very little of that.”
But it’s on the back end where Uhuru—Swahili for freedom— may really make an impact. That’s where a quarter of general partners’ incentive-based management fees will be channeled to the new Uhuru Sustainability Foundation, dedicated to helping social entrepreneurs achieve scale in developing markets. The foundation will keep overhead low by relying on intermediaries such as Ashoka and Endeavor to manage the selection process. “We become an investor in their fund management approach,” Emerson explains, “in the same way we would if we were investing in for-profit activity.”
Once all the parts are operating, Uhuru will have in place a global network of wealthy investors, hedge fund managers, and social entrepreneurs—groups whose circles seldom overlap. Their shared knowledge will inform how Uhuru makes money and does good. Predicts Freundlich, “That could be a much bigger conversation.”
Read more stories by Suzie Boss.