Reposting because this got lost (justifiably) in the uber hype of the stock split dividend announcement yesterday:
After Ryan Cohen’s tweet “Children and animals must be protected at all costs”, I was looking in to the financial statements of Save the Children, who has BCG as a pro bono consultant. Now I’m not sure if this is normal, but it sure does seem like they have some significant investing going on for a charity. From their 2020 financial statement:
https://www.savethechildren.org/us/about-us/financial-information
They mention that they work with hedge funds for bond investments, public equities (stocks), as well as alternatively hedged strategies (mostly derivatives “including both long and short positions”). This raises a couple of questions:
- Why does a children’s charity need to be shorting stocks?
- Where did the 50 million increase in investment come from if 85% of their donations go directly to aid?
From their website:
“In fiscal year 2020, 85% of all expenditures went straight to our mission. This means that, out of every dollar spent, 85 cents goes to programs and services for children and families in need”
So firstly it’s important to note that they have specified that 85% of all expenditures, not all donations go directly towards their mission. The total operational expenditures were $839,837,000, which means that $713,861,460 should have been spent directly on their mission.
From their expenditures, it does look like about $711 million was spent on “Program Services” with an additional $128 million for support services. Thats about right for program expenses, but if my math is correct ($879,468,000 – $839,837,000 = $39,631,000) that only leaves about $40 million in excess revenue left over. They also had an additional 8 million in transfers out fron the excess revenue, so that only leaves about $32 million.
Now if you take a look at the table on page 7, you’ll see the net cash used in investment activities (They purchased $93 million, and sold $63 million) is… well looky looky it’s $30 million. They spent 90 million in investments in 2020, that’s almost 10% of their entire revenue. They are spending almost every available dollar that’s not “straight towards their mission” in the markets. I don’t know about you guys, but this feels alot like something from the Billionare Boys Club:
Maybe this is run of the mill for large charities, but I would definitely be questioning my donation if I knew that 10% was going towards speculating in the markets, especially with the “corrections” that we all know are happening/about to get worse. It feels wrong to be betting with charity money, particularly since they may have unlimited loss potential depending on their short posotions. They list this use of funds as “Raising funds used to help more children”, but what if their investments don’t succeed? They spent more than they made this year (spent $93 million, sold $63 million) so could that phrasing be hiding a 30 million dollar loss? In both 2019 and 2020, the proceeds from sale of investments is less than the purchases of investments, leaving a total loss of about $33 million over the two years. Seems like it’s not “raising” many funds, but what do I know?
I wonder who is advising them to utilize this strategy, and which hedge fund they use?
https://www.bcg.com/en-ca/about/partner-ecosystem/save-the-children
Hedge fund: ?
Anyway, I’m not a financial advisor so maybe someone with more corporate/charity finance experience can step in, but I thought I would bring it up just in case. I sincerely hope there is no corruption here, because I mean… it’s a charity for children SMH… but some transparency wouldn’t be a bad thing in either case.