Hedge funds leaning blue

Amy Scott Oct 30, 2006

KAI RYSSDAL: There’s word today Morgan Stanley is expanding its investment in the trillion-dollar hedge-fund industry. Bloomberg’s reporting the investment bank will take a nearly 20 percent stake in Avenue Capital Group.

It’s a $12 billion fund that invests mostly in what are called distressed companies. Avenue’s also a major funder of the Democratic party. And Marketplace’s Amy Scott reports, it’s not the only hedge fund leaning blue before Election Day.

AMY SCOTT: You wouldn’t think hedge funds would favor the party of taxation and regulation. But the Center on Responsive Politics says about two-thirds of the money the top 50 hedge funds have given this election cycle has gone to Democrats.

HASSAN NEMAZEE: There is really only one major hedge fund that I’ve been able to find that has a Republican-leaning bias, and that’s Elliott Associates.

That’s democratic fundraiser Hassan Nemazee.

NEMAZEE: Every one of the other major hedge funds, from Renaissance to Soros to Tudor to Avenue to D.E. Shaw to Perry Capital, Farillon Capital, all of them have a Democratic leaning.

Nemazee is national finance chairman of the Democratic Senatorial Campaign Committee, or DSCC. It’s his job to call those hedge funds for money. It helps that he’s a major investor himself. And that the DSCC chairman, New York Senator Chuck Schumer, has close ties to Wall Street.

According to politicalmoneyline.com, the DSCC has raised about $25 million more this election cycle than its Republican counterpart. Joe Schocken is CEO of Broadmark Capital, an investment banking and private equity firm in Seattle. He’s also a prominent Democratic fundraiser. Schocken says not just hedge funds, but private equity and other alternative investment groups are giving more.

JOE SCHOCKEN: As investors, they understand trends and they understand where things are going. And when the party that has no power is raising more money than the party in power, that is a significant statement about the direction of the country. That things are not going well. And that there is a change coming.

There is a more cynical view. Congress has been making noises about strengthening hedge fund regulations. Sheila Krumholz is acting executive director at the Center for Responsive Politics. The nonprofit group tracks campaign contributions. Krumholz says hedge funds may be trying to curry favor with the party they’re betting will be in power.

KRUMHOLZ: Of course, the industry wants to reduce the impact of that regulation. They’d like to continue flying under the radar as they have for so many years.

Hedge funds have flown so much under the radar that they’re fairly new on the political scene. Until recently they haven’t had much of a lobbying presence in Washington. And some say fund managers don’t really see themselves as an industry — so diverse are their investment styles and personalities.

Hassan Nemazee, the investor and Democratic fundraiser says fund managers are giving not as a block, but as individuals.

NEMAZEE: In the case of the real estate industry, for instance, in New York, where you make a call to the real estate board and you can very quickly bring some people together. That’s not the case in the hedge-fund or private-equity world.

Hedge funds and private equity are part of a larger industry: Wall Street. And for the first time in 12 years that industry is also contributing more to Democratic candidates and committees than Republican. The latest score is about 51 percent blue, 48 percent red. But there is one special factor:

SOUND: Senator Hillary Rodham Clinton . . . .

Hillary Clinton is widely considered a shoo-in for reelection to the Senate. Many view the millions of dollars she’s been raising — much of it from hedge funds — as a war chest for a possible presidential run. According to the Center for Responsive Politics, if you subtract Hillary money from Wall Street’s contributions overall, the Democratic edge all but vanishes.

In New York, I’m Amy Scott for Marketplace.

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