When a private foundation adds hedge fund investments to its portfolio, a range of issues are presented for consideration and management:
- Prohibitions on the foundation’s financial transactions with insiders;
- Limitations on the extent of the foundation’s permissible ownership interests in business enterprises;
- The exercise of fiduciary obligations of business care and prudence;
- Issues of liquidity; and
- Income tax considerations at funding and during foundation holding of hedge fund investments.
The rules governing these matters often are counterintuitive and may result in adverse consequences to the unwary foundation and its managers. includes investments in hedge funds, especially those that are managed by foundation insiders.