Sunday, March 23, 2014

HSUS Millions Parked in the Caymans?

Why would the Humane Society of the U.S., a nonprofit organization, send over $20 million to hedge funds in the Cayman Islands and Bermuda?

As you can see from the last few pages of HSUS IRS form 990, the Humane Society of the U.S. has sent:
  • $8 million to Fore Multi Strategy Offshore Fund, Ltd., in the Caymans
  • $6.7 million to Fir Tree International Value Fund in the Caymans
  • $5 million to Hayman Capital Offshore Partners, L.P. in Bermuda
  • $500,000 to Ascend Partners Fund I, L.P. in the Caymans 
  • $253,000 to BKM Holdings Ltd. in the Caymans.
The answer is that HSUS is simply trying to park its endowment where it can make money and, because a lot of investors are trying to avoid taxes and regulatory oversight, a lot of hedge funds are located in the Caymans or Bermuda.

For a tax-exempt organization like HSUS, investing in an offshore hedge fund means they can avoid generating unrelated-business taxable income if the fund is structured in such a way that income is paid to investors through a dividend.

Parking money in a hedge fund or private equity does increase risk and does reduce transparency. Hedge funds are not actually betting on the long-term; they are betting on episodic events that might move a stock up or down over a short period of time.

Since I work around the corner from HSUS, I know exactly what their headquarters building looks like, and I have some idea of what they know about their core business (direct mail). Suffice it to say that they have screwed that last one up so badly that they are now facing a court-approved RICO (Racketeer Influenced and Corrupt Organizations Act) lawsuit – the same one the ASPCA has already paid $9.2 million to settle.

That said, does $20 million parked in the Caymans mean HSUS is into some sort of odious financial chicanery?


It simply means the organization is cash rich, is very focused on avoiding unrelated-business taxable income, and is willing to forgo transparency and actually understanding what it is they are investing in in order to achieve that goal. In short, they are making a gamble. Is it a good one? Who knows! 

The only thing for certain is that the millions of old ladies that are being bombarded every month with begging letters from HSUS would be amazed and shocked to find that $20 million of their fixed-income dollars are parked in Cayman Islands hedge funds, and that less than 1 percent of what they actually give goes to help shelter dogs and cats, while 70-75 percent goes to pay for more direct mail.

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