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Curious relationship between Obama and hedge funds

Date: Thursday, November 6, 2008
Author: FT.com Alphaville

What a curious relationship exists between newly-elected US President Barack Obama and hedge funds.

The industry has donated over $1m to Obama’s campaign, according to OpenSecrets.org (small change to a hedge fund manager, perhaps, but it still makes Obama the biggest recipient of the industry’s largesse this year — and is nearly double what rival presidential candidate John McCain received).

But despite the contributions, Obama’s taken a somewhat hostile stance towards the barrons of Mayfair and Stamford. Notably, he accused McCain of being the candidate of ‘Joe the Hedge Fund Manager’ as opposed to all-American blue-collar hero “Joe the Plumber.”

While Obama’s four-year Senate history hasn’t provided much material for a definitive deduction of his hedge fund policies, there are a few hints that FinAlternatives points to today:

Among the bills Obama sponsored during his time in the Senate was one that would have required hedge fund managers to set up anti-money laundering programs supervised by the Treasury Department. Just last week, the Treasury abandoned a similar proposal, but one of the Obama bill’s co-sponsors promises that the president-elect will take up the issue once he is in the White House.

‘The absence of anti-money laundering controls on hedge funds is another regulatory gap that the Congress will have to tackle after the election,’ Sen. Carl Levin (D-Mich.) said.

Obama has also supported tax plans that would close loopholes that favor hedge fund and private equity fund managers, greatly increasing the tax burden on those groups.

Deal Journal also asked if hedge funds should be supporting Obama earlier this year.

Once again we marvel at the Obama knack for getting people on opposite sides of issues to support his candidacy. He has done it with private equity. If he can pull it off with hedge funds, who wouldn’t be impressed? … There is a big hitch, however, and it is a doozy: Obama supports one of the most despised (by hedge funds) regulatory movements in years, the Congressional attempt to raise the capital-gains tax rate paid by hedge funds and private-equity managers to 35% from 15% now. As a Senator, Obama is one voice among many; as President, he would have the clout to make hedgehogs’ tax nightmare a reality.

Perhaps (and this is a big perhaps) hedgies are voting with their hearts the bigger picture in mind, rather than simply their personal interests. At least one claimed to be doing so, telling Reuters.

‘My goal is not to pay less taxes,’ said William Ackman, head of hedge fund Pershing Square Capital Management, who is known for pressuring management of companies to improve profits by cutting costs or selling divisions. ‘My goal is to elect an incredibly smart and capable guy.’