Hedge fund cash flows ahead of U.S. election
Donations nearly triple what they were in 2005-2006 cycle
Updated: 4:04 p.m. CT Sept 14, 2006
msnbc.msn.com
WASHINGTON - Top hedge fund managers are pouring money into U.S. political campaigns ahead of November's congressional elections as the government considers what to do about the lightly policed hedge fund industry.
Campaign finance records show 20 of the most successful U.S. hedge fund managers have pumped more than $3.1 million into campaigns so far in 2005-2006, up from about $1.1 million by the same group in the last mid-term election cycle.
By far the biggest donor is George Soros, of Soros Fund Management, who has given more than $2.3 million in this cycle to Democratic candidates or groups, up from $112,500, according to PoliticalMoneyLine, a campaign finance research group.
Story continues below ? advertisement
"Soros is such a massive donor. He has huge impact," said Donald Green, professor of political science at Yale University. "I wouldn't say he's in a class by himself because there are such people. But he's unusual."
Fifteen of the 20 top managers, including Soros, have increased their giving in this cycle, although another hedge fund heavyweight has recently pulled back from politics.
D.E. Shaw & Co.'s David Shaw has given $78,600 so far in this cycle, down from more than $638,000 four years ago, according to PoliticalMoneyLine.
Like Soros, hedge fund managers tend to favor Democrats over Republicans. They also give mostly to candidates and causes that interest them personally, rather than targeting key lawmakers with influence over regulating the industry.
There are signs that is beginning to change, however, as the relatively new, $1.2-trillion industry matures.
"It seems now the giving is becoming more business motivated," said John Gaine, president of the Managed Funds Association (MFA), an industry lobbying group in Washington.
"We've had increased participation in our PAC (political action committee) as the membership becomes more aware of our mission," said Gaine, whose group has donated $122,500 in this cycle, up from just $7,000 in 2001-2002.
MFA targets lawmakers of both parties with key committee roles, such as House Capital Markets Subcommittee Chairman Richard Baker. The Louisiana Republican has gotten $10,000 from MFA's PAC in this mid-term cycle.
Hedge fund giving is still not as strategically targeted as donations made by bankers, insurers and other, older financial interests, which are generally more pro-Republican.
Financial services firms, as a whole, have donated $38 million in this election cycle, almost two-thirds to Republicans, according to PoliticalMoneyLine.
No other business segment pumps more cash into the Washington access-and-influence bazaar than financial firms.
Rude awakening
Hedge fund managers are just starting to emerge as players on this scene due to their rapid growth -- assets under management have doubled in the past five years -- and thanks to a recent, rude awakening about Washington's impact.
Amid concerns about the growth and risk of hedge funds, the U.S. Securities and Exchange Commission in 2004 adopted a rule forcing many hedge fund advisers to register with the investor protection agency and submit to occasional inspections.
Famously secretive and free-wheeling, much of the industry resisted registration, although some funds advisers did not. One hedge fund manager sued over the matter and won. A federal appeals court in June invalidated the SEC rule.
Now the SEC is working on a scaled-back plan for hedge fund oversight, while its examiners dig deeply into hedge fund matters. The Treasury Department is examining its role. And there is bipartisan movement in the House Financial Services Committee to draw up oversight legislation, which could gather momentum if Democrats make the House gains some predict.
"The SEC registration episode served to draw greater attention to Washington within the industry," Gaine said.
James Chanos, president of hedge fund Kynikos Associates, was alarmed by the registration struggle. His firm registered early, but the controversy spurred him to set up a group called the Coalition of Private Investment Companies to urge hedge fund managers to be more politically active.
Hedge funds are pools of money that use a range of investing strategies to maximize profits, such as selling short, unlike traditional long-only mutual funds.
Once open only to the rich and institutions, such as pension funds, hedge funds lately are letting in the less well-heeled, raising concerns among government watchdogs.
Massive fees
One hallmark of the industry is the massive fees paid to hedge fund managers. Trade journal Institutional Investor's Alpha estimated that 2005's highest-paid hedge fund manager -- Long Island-based James Simons of Renaissance Technologies Corp. -- took home a $1.5-billion paycheck.
Some other top performers include Avenue Capital Group's Marc Lasry; Blue Ridge Capital's John Griffin; Lone Pine Capital's Stephen Mandel; and Och-Ziff Capital's Daniel Och.
Simons has donated $72,900 in this cycle, more than double four years ago; Lasry has given $77,100 versus none in the 2002 cycle; Griffin, $55,500 versus $10,500; Mandel, $30,100 versus $3,250; Och, $70,400 versus $22,500, records show.
Like Soros, donations by these hedge fund kingpins mainly target candidates of personal or local interest.
Many hedge funds are based in New York and Connecticut. New York Democratic Sen. Hillary Clinton is a frequent recipient of hedge fund donations.
The rise of hedge fund managers as a political force is expanding the financial sector's Washington presence, while also complicating it, said industry insiders and academics.
The priorities of hedge fund managers seldom align with those of others in a sector already riven by conflicts.
"The hedge funds have tremendous political clout but they also have significant enemies. The mutual funds hate the hedge funds ... The corporate community sees them as destabilizing," said Columbia University Law School Professor John Coffee.
(c) Reuters 2006. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world. |
