Few figures have had as much leadership impact in both markets and philanthropy as Sir Paul Marshall. He made his fortune as co-founder and chairman of Marshall Wace LLP, one of Europe's largest hedge funds, with $40 billion in assets under management. And he has used his business and investing acumen to reshape approaches to philanthropy.

Marshall’s personal passion has been around education. He is a founder and trustee of the Education Policy Institute in the United Kingdom. He is also a founder and trustee of Absolute Return for Kids (ARK), a group that provides education options for children from the most financially deprived inner-city neighbourhoods.

Sir Paul has pushed the charities he supports to adopt the discipline employed in the world of finance. In fact, his donations to the London School of Economics are being used to found The Marshall Institute for Philanthropy and Social Entrepreneurship, whose core aim is "to improve the impact and effectiveness of private contributions to the public good.”

In short, who better to discuss philanthropy and alternative investments? That’s why we asked Sir Paul to address the topics at J.P. Morgan’s Investment Summit for Endowments, Foundations and Families in London in April. Monica Issar, global head of multi-asset and portfolio solutions at J.P. Morgan, kicked off the interview by asking Marshall how his hedge fund continued to give healthy returns to investors at a time when the industry is in a slump.

In keeping with the theme of the session, he cited the need to constantly innovate.

“I am acutely aware that like politicians, all hedge funds managers eventually end in failure,” he joked. He added, however, that this fear of failure causes his team to constantly re-evaluate how they approach their work. Marshall Wace has been able to consistently generate healthy returns for investors because it relentlessly invests in new technologies. “We recently made a big investment in alternative data sets and hired 10 data scientists to develop our Quantamental business,” he told the audience. “We don’t know what will come out of it, but we do know we have to invest just to stand still.”

Looking forward, Sir Paul envisioned three vectors of innovation and change in the hedge fund industry. In addition to an increasing trend towards using technology to cultivate proprietary data sets, he touched on two other directions to which he sees alternatives moving. The first are frontier and emerging markets such as China, which he believes holds huge potential for foreign investors if they can gain better access and drive down costs to generate higher returns.

He also sees potential for hedge funds in “adjacent markets,” such as the European private corporate credit market. Today, only 25% of the market in Europe is not financed by banks, compared with 75% in the U.S., he explained, so there is strong upside potential to grow in European private credit.

Issar then asked Marshall what inspired his deep involvement in philanthropic works. He replied by differentiating between charity and philanthropy. The first, he said, is just about giving from the heart. The second is about helping people help themselves. “Finding solutions to problems is why I enjoy it so much.”

Marshall has two main criteria when considering a philanthropic venture to back. The first, he said, is that it has to have a defined “theory for change” that is both able to stand up to scrutiny and is different from other previously attempted solutions. Secondly, there needs to be a defined “path towards sustainability,” so the venture does not have to rely on grants to fund it in perpetuity.

Evaluating his work with Absolute Return for Kids, he recalled that the original goal of the education initiative had been twofold: to give a transformative education to every child in the ARK schools, and also to change the national conversation on the potential of children from low-income backgrounds. He argued that Britain had written off many of the children from the poorest areas.

Academies were very controversial when they first started because they took away local control of the schools. Despite years of having protestors camped on site, however, the ARK schools followed through with their vision and last year one of those schools was the highest performing secondary school in the U.K. “It is important to remain committed and remember your mission,” he said.

Marshall believes every philanthropic organisation should have its own definition of success, but that definition must be clearly articulated. “Success is different for every venture and each should have its own accountability metrics,” he said, adding that the real trick is to “make sure these are defined, agreed and reviewed by everyone concerned to ensure you hit your mission.”

Asked if his children would be following in his footsteps, he demurred. He advises against forcing family members into your own charity. “Keep in mind that everyone is different and has different passions,” he said. “Everyone should have their own philanthropic projects and I don’t want to impose my passion. Bring family in if they want to be part of it, but, if not, help them find their own cause.”