Hedge Funds, Buyout Firms Favor Democrats With Campaign Money
Aug. 14 (Bloomberg) -- Democrats are collecting more than two-thirds of the campaign donations from employees of the biggest hedge funds and buyout firms, as the party taps into one of Wall Street's fastest- growing sources of wealth.
Of the $7.4 million contributed by employees of the 100 largest hedge funds and 50 biggest buyout firms in 2005-06, Democrats received $5 million, Federal Election Commission records show. The biggest checks went to congressional campaign committees led by New York Senator Charles Schumer and Illinois Representative Rahm Emanuel, which took in $2.8 million.
Donors say they're giving more to Democrats because of their dismay over President George W. Bush's performance on issues such as the war in Iraq and because they see a real chance for Democrats to win control of Congress for the first time in 12 years. They say they view Schumer and Emanuel -- who are courting Wall Street donors -- as key to that goal.
``Rahm and Senator Schumer are pretty charismatic guys -- they've been extremely aggressive in making sure they target the right people and talk to the right people,'' says Marc Lasry, managing partner at New York-based Avenue Capital Group, among the biggest hedge funds. ``Iraq has made it easier for Rahm and Senator Schumer to raise money.''
The trend among hedge-fund and buyout-firm donors contrasts with political giving by the wider financial community, which has long favored Republicans and continues to do so this year.
Business PACs
Political action committees in the finance and insurance industries have given 64 percent of their $34.8 million in donations to Republican candidates for this year's election, according to PoliticalMoneyLine, a Washington company that follows money in politics.
``Hedge-fund and buyout-fund giving is largely the personal giving of wealthy individuals who probably lean Democratic in their personal beliefs,'' says Kenneth Gross, a campaign-finance lawyer in Washington. PACs are ``more prone to back incumbents in support of legislative programs. The PAC ship won't begin to turn significantly unless the Democrats actually gain control.''
Mallory Factor, a New York merchant banker who raised at least $500,000 for Bush and the Republican Party in 2004, says the hedge- fund industry perceives the mood of the country as moving against incumbents, most of whom are Republicans.
``Hedge-fund guys happen to have a very good awareness of what is happening,'' Factor says. ``They understand trends.''
Ties to Funds
Schumer, 55, and Emanuel, 46, are capitalizing on their ties to hedge and private-equity funds to boost Democratic fund raising from the industry. Schumer is a New York City native and counts Wall Street as a constituency. During his 2004 re-election campaign, he raised more money from hedge-fund executives than any Democrat in Congress.
``It is our good fortune that a lot of these people happen to live or work in New York and that Chuck Schumer knows them,'' says Phil Singer, spokesman for the Democratic Senatorial Campaign Committee led by Schumer.
Emanuel, who leads the Democratic Congressional Campaign Committee, is a former managing director of the New York investment firm Wasserstein Perella Group, now owned by Frankfurt-based Dresdner Bank AG. He was finance chairman of President Bill Clinton's 1992 campaign and also has a foot in the hedge-fund industry.
John Simpson, chief operating officer of Canyon Capital Advisors in Beverly Hills, California, is treasurer of Emanuel's individual PAC. Canyon Capital manages $7.9 billion. Emanuel wasn't available to comment.
Worked `On the Street'
``Rahm used to work on the Street,'' Lasry says of Emanuel. ``He knows the guys and how people think.''
Hedge funds manage $1.2 trillion globally, up $200 billion in one year. U.S. private-equity companies have $544.1 billion in capital under management, according to the National Venture Capital Association, using figures from Thomson Financial. The 8,500 hedge funds and 566 U.S.-based private equity funds are overwhelmingly located in heavily Democratic cities.
The donations ``are not entirely surprising if you consider the demographics of highly educated people living in New York, Boston and San Francisco,'' says Jim Lucier, a senior political analyst at Prudential Equity Group in Washington.
Lasry, of Avenue Capital Group, and his wife have given $110,000 to Schumer and Emanuel's committees since January 2005, according to FEC figures. They gave $51,000 for the 2004 elections. Lasry has held fund-raisers for Emanuel and the DCCC at his townhouse on Manhattan's Upper East Side.
`Grew Up a Democrat'
Tim Collins, founder and chief executive of the New York- based buyout firm Ripplewood Holdings LLC, and his wife have given at least $42,000 to Schumer and Emanuel's House and Senate party campaign committees, according to FEC figures.
``I grew up a Democrat, I've been a Democrat all my life and I don't mind paying higher taxes if it means taking care of people less fortunate than myself,'' says Collins, 49, whose firm is one of the 50 largest buyout firms.
Hedge-fund employees also gave more to Democrats in the 2002 and 2004 elections, though not to the same degree as this year. In 2004, executives at the 50 biggest hedge funds gave about 62 percent of their donations to Democrats.
While the overall trend in the industry favored the Democrats, Republicans benefited the most from donations given by employees of New York-based hedge fund Elliott Associates LP, which had the most generous political donors among the 150 firms. The fund's executives, led by founder Paul Singer, have made at least $503,050 in contributions since January 2005.
Republicans `Better' on Issues
``I believe strongly that everyone should participate in the political process,'' Singer says. ``I continue to believe that the Republican Party is better on important issues like national security, energy policy, taxes, judges, litigation reform and the economy.''
Employees of Boston-based Bain Capital LLC, a private-equity firm, ranked second, giving at least $362,300. Most of the money went to Democrats.
Senator Hillary Clinton, a New York Democrat, raised the most of any individual candidate from hedge funds, taking in at least $144,460 from January 2005 through June 2006. Indiana Senator Evan Bayh, also a Democrat, did the best among private equity or buyout firms, receiving $124,625.
The Democrats are tapping into an important source of campaign cash for Republicans. Three potential 2008 Republican presidential candidates -- Senator John McCain of Arizona, Governor Mitt Romney of Massachusetts and former New York Mayor Rudolph Giuliani -- count executives of hedge funds or buyout firms as their biggest corporate contributors, according to FEC records.
McCain's top financial supporters are executives of New York-based Kohlberg, Kravis, Roberts & Co., the biggest buyout firm. The largest donors to Romney are employees of Bain Capital, which he founded before entering politics, and executives of Elliott Management are Giuliani's biggest company supporters.