Hedge funds bet heavily on Republicans at end of election

Introduction

A small network of hedge fund executives pumped at least $10 million into Republican campaign committees and allied groups in last year’s elections, helping bankroll GOP victories that changed the balance of power in Washington, according to a review of campaign records and interviews with industry insiders.

The review by the Center for Public Integrity and NBC found that some of the heaviest contributions from industry leaders came late in the campaign or were funneled through obscure “joint fundraising committees” and other independent GOP allies — some of which were set up to maximize campaign fundraising or to avoid disclosing the names of big donors. The Center and NBC analyzed campaign data compiled by CQ Moneyline and the Internal Revenue Service.

Bitterly opposed to economic and regulatory policies backed by President Barack Obama and Democrats — including proposals to increase taxes on some of their profits — top Wall Street hedge fund moguls were unusually energized during last year’s election. They held multiple fundraisers and coordinated strategy to direct what appear to be unprecedented sums into the coffers of GOP and allied political committees.

The net effect has given hedge funds important new allies at a time when they are fending off some regulations mandated by the Dodd-Frank financial reform law and an aggressive Justice Department investigation into insider trading.

A prime example is Rep. Scott Garrett, a little known Republican from northern New Jersey who has been a staunch defender of the hedge fund industry and will now chair the House financial services subcommittee on capital markets. As it became increasingly clear late last summer that Republicans were likely to capture the House, executives at the hedge fund Elliott Management Co. raised at least $195,800 for two committees that benefited Garrett directly and bolstered his standing with key Republicans. Paul Singer, chairman of the $17 billion Manhattan firm, has been one of the GOP’s most prolific fundraisers and donors.

Here’s how the $195,800 broke down:

• The review by the Center and NBC found $45,000 donated on Sept. 15 by nine Elliott executives, who gave the maximum of $5,000 apiece to Garrett’s leadership PAC, called Supporting Conservatives of Today and Tomorrow.

• Another $150,800 was first reported by the New Jersey newspaper, The Record. Those funds were donated last summer by Elliott executives and one spouse to a joint fundraising committee called the Scott Garrett Victory Committee. The Center independently confirmed the donations through FEC records.

The Elliott contributions provided about 96 percent of all the funds raised by Garrett’s victory committee, which shared its proceeds with the National Republican Congressional Committee and other Republicans. These joint committees are not subject to the lower limit of $2,400 per election that applies to an individual candidate. As a result, the lion’s share of the largesse went to the NRCC, and less than $10,000 to Garrett’s campaign.

“This is particularly appalling,” said Ellen Miller, executive director of the Sunlight Foundation, a nonprofit group that promotes transparency in campaign finance and has financially supported the Center. “No one in America will believe that Representative Garrett can provide impartial oversight of the hedge fund industry after taking these huge amounts of money from one company.”

Asked to comment about the hefty executive contributions this year to the GOP, a spokesman for Elliott stressed that the firm itself “does not make donations to political candidates or parties. Some individual Elliott employees raise funds and donate to candidates and party organizations, both Democrat and Republican, at the federal and state levels.”

Garrett’s office did not respond to repeated phone calls and e-mails requesting comment. Garrett is known as a strong free market conservative who has long been supportive of the industry. The contributions from Elliott executives were largely the fundraising handiwork of Keith Horn, Elliott’s chief operating officer, who is a constituent of the congressman and has been raising money for him for years, according to a Garrett ally who requested anonymity. Horn declined to comment.

The Elliott contributions to Garrett were only a small portion of a tidal wave of hedge fund contributions that have boosted the industry’s fortunes in Washington. The review of campaign data showed that Singer, Elliot’s publicity-shy chairman, played a critical role, holding fundraisers for GOP Senate candidates in his Central Park West apartment. He and other Elliot executives donated nearly $500,000 to the National Republican Senatorial Committee, making the firm’s executives among the highest overall contributors to that group. The NRSC is the fundraising entity that doles out contributions to help GOP Senate candidates.

Singer was one of several hedge fund billionaires who opened their wallets wide to help the GOP make huge gains on Election Day.

One key industry player was Steven Cohen, the billionaire chairman of SAC Capital Advisors in Stamford, Conn. His firm recently received a subpoena seeking information related to a major Wall Street insider trading probe being conducted by the U.S. Attorney’s Office in Manhattan, according to a person familiar with the probe. An SAC spokesman declined to comment for this story.

Another key player who donated to various GOP committees was Ken Griffin, the president of Chicago’s Citadel Investment, which reportedly has also received a subpoena in the same insider trading probe. Bruce Kovner of Caxton Associates in Princeton, N.J., Robert Mercer, co-chairman of Renaissance Technologies, which is headquartered on Long Island, and John Paulson, the chairman of Paulson & Co. of Manhattan were also among the leading hedge fund executives to write big checks to GOP coffers.

Spokesmen for Griffin, Kovner, Mercer and Paulson all declined comment.

Some of these hedge fund honchos attended a late August dinner at Cohen’s palatial home in Greenwich, Conn., including Singer and Kovner. Dinner conversation featured the upcoming elections and political contributions, according to an industry official familiar with the gathering who requested anonymity.

Among some more notable examples:

• Singer, Cohen, Griffin (and his wife Anne), Kovner, Paulson and another top hedge fund executive, Cliff Asness of AQR, donated nearly $6 million to the Republican Governors Association, headed by Mississippi Gov. Haley Barbour. About $3 million of that money was given in September and October, when the RGA was spearheading a crucial get-out-the-vote effort aimed at boosting Republican turnout. (The RGA is set up as a “527” committee — under that section of the tax code — which is able to take unlimited contributions from individuals and corporations but must disclose its donors publicly.)

• Griffin and his wife Anne (managing partner at Aragon Global Management, another Chicago hedge fund) gave a total of $500,000 in the election’s waning days to American Crossroads, the “independent” group whose formation was spearheaded by Karl Rove, President George W. Bush’s former political strategist, and Ed Gillespie, the former chairman of the Republican National Committee. A closely related nonprofit group, Crossroads GPS, which does not have to publicly disclose its donors, also received a substantial donation from Singer, according to fundraisers familiar with the group.

• Mercer, the co-chairman of Renaissance, poured more than $600,000 into Concerned Taxpayers of America, an independent expenditure group that ran attack ads against congressional Democrats. Almost half of Mercer’s donations were made in October and November.

The magnitude of the industry donations are particularly notable because at least some of the hedge fund executives have in the past given generously to Democrats. Cohen, for example, has been a major donor to Sen. Chris Dodd, the former chairman of the Senate Banking Committee. The Chicago-based Griffin was even a “bundler” for Obama in the last election. In addition, Paulson was a significant donor and fundraiser for Democratic Sen. Charles Schumer, donating $30,400 to the Democratic Senatorial Campaign Committee as late as June 2009. But in 2010, he increased his giving to Republicans, contributing along with other members of his firm and his wife more than $450,000 to various GOP accounts.

Last year’s contributions were driven in large part by hedge fund opposition to many of the tax and regulatory policies of Obama and congressional Democrats. Some hedge fund executives, along with others from private equity funds, were especially exercised about a measure that passed the House last year — but stalled in the Senate — that would tax their profits, known as carried interest, as ordinary income rather than capital gains. If Congress enacted the Democratic-backed tax changes, it would sharply increase taxes on many executives from a marginal rate of 15 percent to 35 percent. Further, some industry players are concerned about provisions in the Dodd-Frank financial services reform law, that would impose tighter rules on the trading of derivatives and require greater public disclosure.

But the animus of hedge fund titans towards Obama and the Democrats was also driven by what they viewed as politically charged rhetoric that stigmatized them.

Obama attacked the industry as “speculators” and criticized its role in Chrysler’s bankruptcy, angering hedge fund managers who felt it amounted to demonization that played to class warfare.

To be sure, the $10 million that the network of hedge fund executives donated to GOP causes this cycle was only a small fraction of the overall $4 billion or more that was spent on the elections, but the industry leaders placed their bets on many winners and thus could reap dividends from their political investments.

The $10 million figure represents those larger sums contributed by a number of prominent hedge fund executives. But a full accounting of hedge fund donations would total considerably higher and may never be completely known because some probably donated anonymously to outside groups that don’t have to disclose their funding.

The new GOP House may be far friendlier to the hedge fund industry, and some of its key allies are now poised to inherit important leadership positions.

Incoming Majority Leader Eric Cantor of Virginia has been critical of the “carried interest” proposal in the House and has fought hard to block it. In the last two years, Cantor’s campaign committee and his leadership PAC, Every Republican is Crucial PAC, received substantial contributions from hedge fund executives, including at least $9,800 from Cohen, $4,800 from Singer, and $4,000 from Griffin. Further, six other executives at Cohen’s firm and one of their spouses donated at least $21,500 to Cantor’s PAC. And six top executives at the giant private equity firm, KKR, contributed $55,000 to the Cantor Victory Committee, a joint committee that benefitted Cantor’s campaign, the NRCC and two other entities.

Asked for comment, Brad Dayspring, a spokesman for Cantor, said the majority leader “has made clear that the new Republican majority will use the oversight process and all means at its disposal —including the power of appropriations — to expose and repeal regulations that kill jobs and are barriers to capital formulation and economic growth.”

The improved standing of the hedge fund business is underscored by the rise of Garrett to the chairmanship of the subcommittee that will now oversee the industry. The panel will also oversee much of the implementation of the Dodd-Frank financial services reform law by the Securities and Exchange Commission and some other agencies. Elements of the SEC’s expanded powers make some hedge fund executives nervous.

After the GOP success became apparent on election night, Garrett announced that he might seek to overturn parts of the Dodd-Frank measure. And he recently threatened to use his powers to cut funding for the SEC just as the agency has begun efforts to write rules aimed at protecting investors under the law. “Why are we rewarding the agency that failed so miserably on so many fronts?” he told The Wall Street Journal.

The Center’s Data Editor David Donald also contributed to this report.