The education of Eli Broad

This businessman and philanthropist is trying to promote the arts, improve schools and cure disease. And he's counting on a $1 billion investment in hedge funds to get it all done.

Millionaire industrialist Eli Broad believes in taking calculated risks. That belief was the driving principle behind his decision nearly 50 years ago to leave a comfortable job at a major public accounting agency to start his own firm. It later guided Broad as he created two Fortune 500 companies -- homebuilder KB Home (formerly Kaufman and Broad Home Corp.) and financial services provider SunAmerica.

"I don't take risks unless I can get a big reward," says Broad (his name rhymes with "road"). In 1999 he sold SunAmerica to insurance giant American International Group for $18 billion; he stepped down as chairman of that business, now called AIG SunAmerica, in January 2005.

Today the 72-year-old Broad, whose fortune is estimated at $5.5 billion, is looking for a different kind of payoff. He devotes much of his time and money to the Broad foundations, a trio of philanthropic organizations based in his hometown of Los Angeles that are trying to improve education, fund new medical research and promote the arts.

With $1.4 billion in combined assets, the Broad foundations rank among the 40 biggest philanthropies in the U.S. But that is not enough to meet the ambitious goals of Broad, who says he would like to double their assets in the next three years. To that end he plans to donate more of his billions. He is also looking to a far riskier source of capital: hedge funds.

"Hedge funds offer greater returns than index funds or traditional funds," Broad says. "They provide greater reward over time with less risk than stocks and bonds. All of this helps us do more philanthropically."

Broad invests in hedge funds much the same way he built two multibillion-dollar companies: He seeks out executives who are like himself -- smart, focused, driven -- and who know how to take and manage risks. Broad keeps about 20 percent of his assets in hedge funds, says Peter Adamson, chief investment officer for the Broad foundations and family office. Today, Adamson, a former McKinsey & Co. consultant who was hired in 2001, oversees...