Hedging 2016

Will Tucker reports at Open Secrets:

Hedge fund managers know something about when to hold and when to fold. Last month, they did more of the former when it came to political giving, holding steady with their pattern of making uber-contributions to presidential super PACs — even after the favored candidate of some of them dropped out of the race.

Wall Street dominates political giving. But it’s these donors, a much smaller subset of the securities sector, who play with the biggest money.

The month of March saw more big contributions to presidential super PACs fromJames Simons, Robert Mercer, Donald Sussman, Paul Singer , George Soros andCliff Asness in particular. The six men — founders of investment companies that manage hedge funds, or high-risk private funds that often require seven-figure buy-ins from their investors — anted up a total of $9.5 million to presidentially focused super PACs for the month, bringing their total gifts to these groups to $33.5 million for the cycle.

Before the latest super PAC filings, which were due at the Federal Election Commission by midnight last night, the larger securities and investment industry — including not just hedge funds but commercial banks, brokerage firms and other industries — had given $221 million to congressional and presidential campaigns and super PACs in the 2016 cycle.
By itself, the hedge fund industry had given almost $75 million.

The 158

Nicholas Confessore, Sarah Cohen, and Karen Yourish report at The New York Times:

Just 158 families, along with companies they own or control, contributed $176 million in the first phase of the campaign, a New York Times investigation found. Not since before Watergate have so few people and businesses provided so much early money in a campaign, most of it through channels legalized by the Supreme Court’s Citizens United decision five years ago.
...
The 158 families each contributed $250,000 or more in the campaign through June 30, according to the most recent available Federal Election Commission filings and other data, while an additional 200 families gave more than $100,000. Together, the two groups contributed well over half the money in the presidential election -- the vast majority of it supporting Republicans.
...
Most of the families are clustered around just nine cities. Many are neighbors, living near one another in neighborhoods like Bel Air and Brentwood in Los Angeles; River Oaks, a Houston community popular with energy executives; or Indian Creek Village, a private island near Miami that has a private security force and just 35 homes lining an 18-hole golf course.
...
But instead of working their way up to the executive suite at Goldman Sachs or Exxon, most of these donors set out on their own, establishing privately held firms controlled individually or with partners. In finance, they started hedge funds, or formed private equity and venture capital firms, benefiting from favorable tax treatment of debt and capital gains, and more recently from a rising stock market and low interest rates. In energy, some were latter-day wildcatters, early to capitalize on the new drilling technologies and high energy prices that made it economical to exploit shale formations in North Dakota, Ohio, Pennsylvania and Texas. Others made fortunes supplying those wildcatters with pipelines, trucks and equipment for “fracking.”

In both energy and finance, their businesses, when successful, could throw off enormous amounts of cash — unlike industries in which wealth might have been tied up in investments. Those without shareholders or boards of directors have had unusual freedom to indulge their political passions. Together, the two industries accounted for well over half of the cash contributed by the top 158 families.

Obama Money Challenges

At the Wall Street Journal, writes of Priorities USA (a 501(c)(4) and Priorities USA Action (a super PAC).  Bill Burton had hoped to raise $100 million but it falling short.

Many of the Democratic Party's biggest donors aren't planning to support his organization, either because they're unhappy with Mr. Obama or disillusioned with politics in general. There's also this fund-raising fact of life: Wealthy donors are more likely to open up their wallets to defeat a sitting president than to protect one.

Mr. Burton's group has spent less than $1 million on advertisements this year, while the leading pro-Republican organization has spent more than $20 million.
Mr. Burton, a former spokesman for Mr. Obama, said in an interview that potential donors don't always know who he is, which means he has to use meetings for introductions, not strictly for pitching.

Arthur Lipson, owner of hedge-fund management firm Western Investment, has donated more than $500,000 to Democratic causes in the past decade, according to public records. He hasn't heard from Mr. Burton, but an outreach probably wouldn't be worth the effort. "I will definitely not donate to Obama in any way, shape or form," said Mr. Lipson, who objects to deals the president has made with Republicans.

And a financial shift continues. Bloomberg reports on Kenneth Griffin:

Chicago hedge fund executive Kenneth Griffin, who raised more than $50,000 for Barack Obama in 2008, said today he would back Mitt Romney in 2012.

“Mitt Romney understands that the private sector is the source of economic growth and job creation,” said Griffin, chief executive of the $11 billion Citadel LLC, in an e-mailed statement. “His ideas can help get America’s economy moving again and start putting people back to work.”
...This year, he gave $300,000 to American Crossroads, the political action committee advised by Karl Rove, the chief political aide to then-President George W. Bush. Griffin donated $250,000 last year. American Crossroads reported spending $21 million in 2010 to help elect Republican congressional candidates.

...

Romney has benefited from some dissatisfaction on Wall Street toward Obama, who signed new banking regulations last year. Romney raised $3.6 million through Sept. 30 from securities and investment industry employees and their families, more than double the $1.6 million taken in by Obama, according to the Center for Responsive Politics, a Washington-based research group.

Four years ago, Obama raised $16 million from Wall Street. Romney, who dropped out of the Republican race on Feb. 7, 2008, collected $5 million.

Wall Street Money

In 2008, President Obama did well raising campaign money from hedge funds and other elements of the financial community. Nicholas Confessore and Griff Palmer write at The New York Times:

It is no secret that the relationship between President Obama and Wall Street has chilled. A striking measure of that is the latest campaign finance reports.

Mitt Romney has raised far more money than Mr. Obama this year from the firms that have been among Wall Street’s top sources of donations for the two candidates.

That gap underscores the growing alienation from Mr. Obama among many rank-and-file financial professionals and Mr. Romney’s aggressive and successful efforts to woo them.

The imbalance exists at large investment banks and hedge funds, private equity firms and commercial banks, according to a New York Times analysis of the firms that accounted for the most campaign contributions from the industry to Mr. Romney and Mr. Obama in 2008, based on data from the Federal Election Commission and the nonpartisan Center for Responsive Politics

Hedging

Talking Points Memo provides additional information about Ken Griffin:

They may be popping champagne corks over at the headquarters of the Karl Rove-founded American Crossroads Republican money machine after the Huffington Post reported the group snagged Obama 2008 bundler Ken Griffin, according to the latest FEC report.

But a simple Google search uncovers that all that glitters is not political gold when it comes to Griffin, a hedge fund founder from Chicago and a rich donor who raised big cash for President Obama and his rival John McCain in the last presidential election.

Here's how Chicago Magazine once described Griffin's donor profile:

Griffin has hedged his political bets, giving money to politicians on both sides of the aisle, including Representative Paul Ryan and Senator Tom Coburn, both Republicans, and the Democrats Rahm Emanuel (both for Congress and for mayor) and Senator Evan Bayh. Nonetheless, the preponderance of the donations has gone to Republicans.

Crossroads and Hedges

Previous posts noted the migration of hedge-fund money away from Democrats. Paul Blumenthal adds more detail at The Huffington Post:

The Karl Rove-affiliated Super PAC American Crossroads raised $2.7 million between July 1 and August 24, according to a new report filed with the Federal Election Commission.

Notably, Kenneth Griffin, the founder and CEO of the massive hedge fund Citadel, donated $300,000 to the group. In 2008, Griffin backed Barack Obama's bid for the presidency, raising between $50,000 and $100,000 as a donation 'bundler' and contributing the maximum $4,600 to the then-Illinois senator's presidential bid.

Recently, Griffin bemoaned the lack of attention paid to hedge fund managers by the White House and claimed that President Obama had expanded government spending too much. Griffin was quoted in May saying, "The frustration with Obama is that the administration is taking the spending levels of the Bush era and multiplying them by some multiple. We are greatly concerned about the fiscal stability of this country."

The vast majority of American Crossroads' recent contributions came from Texas home builder Bob Perry (no relation to Texas Gov. Rick Perry). Perry donated $2 million in August, bringing his annual total of donations to American Crossroads to $2.5 million and his total contributions since the group was founded in 2010 to $9.5 million. Perry is the biggest donor to political campaigns in the nation. In the past, he has donated millions of dollars to Republican outside groups including the Swift Boat Veterans for Truth in 2004 and the Economic Freedom Fund in 2006.

Hedge Fund Money

In Epic Journey (p. 106), we noted candidate Obama's success at raising money from hedge fund managers. The Wall Street Journal reports that times have changed:

Hedge-fund managers made a big bet on Barack Obama and other Democrats in 2008. Now, with the 2012 contest gearing up, some prominent fund managers have turned their backs on the party and are actively supporting Republicans.

Daniel Loeb, founder of Third Point LLC, was one of the biggest Obama fund-raisers in 2008, rounding up $200,000 for him, according to campaign-finance records. In the decade prior, Mr. Loeb and his wife donated $250,000 to Democrats and less than $10,000 to Republicans.

But since Mr. Obama's inauguration, Mr. Loeb has given $468,000 to Republican candidates and the GOP, and just $8,000 to Democrats. Hedge-fund kings have feelings, too, and the president appears to have hurt them.

"I am sure, if we are really nice and stay quiet, everything will be alright and the president will become more centrist and that all his tough talk is just words," Mr. Loeb wrote in an email about four months ago expressing frustration with the president's posture toward Wall Street. "I mean, he really loves us and when he beats us, he doesn't mean it." The email, sent to eight friends, was widely circulated on Wall Street.

Mr. Loeb is part of a shift in political allegiance within the world of hedge funds that also includes such big names as Steven Cohen's SAC Capital Advisors and Kenneth Griffin's Citadel Investment Group. Managers and employees of hedge funds directed a majority of their contributions to the GOP in the 2009-2010 election season, a pattern not seen since 1996, when the industry was much smaller.

See data from The Center for Responsive Politics.

As a previous post noted, American Crossroads was one beneficiary of the shift in 2010.

Hedge Funds and the President

Dow Jones reports:

U.S. President Barack Obama's criticisms of hedge funds last week, after some funds rejected a debt restructuring plan for Chrysler LLC, indicates a nasty fight may be brewing over government plans to regulate the industry. Already this week, an Obama administration official has re-ignited calls for hedge fund regulations, suggesting Obama may still be hot under the collar with regards to these investment pools. ... Obama quickly slammed the lenders who rejected the deal, and unnamed administration officials specifically called out hedge funds as being the ringleaders, and suggested their decision was unpatriotic. The creditors held out for "an unjustified taxpayer-funded bailout," Obama said in an angry tone. "I don't stand with those who held out when everybody else is making sacrifices."

The President did not always have such a strained relationship with hedge fund managers. Check out contribution data at the Center for Responsive Politics. A year ago, as we note in Epic Journey, Andrew Ross Sorkin wrote in the New York Times:

[M]any of the wealthiest hedge fund managers are lining up behind the Obama campaign.Many of the top 10 managers on Alpha magazine's mind-blowing 2007 rich list, which was released last week, have put money on Mr. Obama, according to the Center for Responsive Politics, which tracks campaign contributions. They have each given the maximum donation allowed, $2,300. (Let’s face it, this is pocket lint to these guys.) ...

So why is Mr. Obama such a popular choice among the hedge fund crowd? In a word, access. Unlike Mr. McCain and Mrs. Clinton, Mr. Obama is relatively new to national politics and is therefore open to bringing new people — and new money — into the tent. For money types who want a table, or at least to look involved and get an invitation to the right parties, Mr. Obama is the candidate. As one of the hedge fund managers on the Alpha list said, “To be in Hillary’s inner circle, you had to be giving a decade ago, when Bill was president.” ...

And then there is what some Wall Streeters describe as the “iconoclast thing.” Hedge fund managers like to think of themselves as outsiders with fresh perspectives. The Obama campaign is trying to project a similar image. Mr. Obama might be struggling with the blue-collar vote in Pennsylvania, but he has nailed the hedge fund vote.