A University Endowment of Money Made in the Real World

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Ken Griffin, founder and chief executive of Citadel, a hedge fund. His $125 million gift to the University of Chicago is the second largest in its history.

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Heidi Gutman/CNBC

Oh the irony. The University of Chicago is getting a $125 million gift from Ken Griffin, the founder of the hedge fund Citadel. The “Chicago school” of economics, as it is called, leans heavily toward free and efficient markets. Mr. Griffin’s name and cash — earned in a business that depends on markets being inefficient — will now endow the university’s economics department.

To be fair, it’s not all Milton Friedman laissez-faire and Eugene Fama efficient-markets theory at Chicago. Look no further than this year’s Nobel Prize for economics, awarded to the behavioral economist Richard Thaler. His work on human biases might help explain many investors’ willingness to pay huge fees to hedge funds like Citadel even when, as recently, the industry’s performance has looked anemic, at least compared with the stock market.

Yet the irony remains inescapable. Most hedge funds exist to generate so-called alpha – a return over and above the average in the relevant market. That’s their pitch, and that’s how they justify fees that are typically based on 2 percent of badets and 20 percent of gains. Mr. Fama’s famous theory, which underpins many economic and financial models, argues that’s impossible.

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Regardless, Mr. Griffin has made his money — some $8.5 billion, according to last month’s Forbes 400 list of the wealthiest Americans — in the real world, and kudos to him for promising to give some more of it away. It’s the second largest gift in the university’s history, behind David Booth’s $300 million endowment for the business school.

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