Playing the Influence Market:

Analysis of Hedge Fund Campaign Contributions in New York State

A Report by Common Cause/New York April 2012

74 Trinity Place, Suite 901,New York, NY 10006 www.commoncause.org/ny

This report was prepared by Brian Paul, Research and Policy Coordinator and Susan Lerner, Executive Director of Common Cause/New York with the assistance of Common Cause/NY volunteers Rosemary Bachvarova and Minhye Kim. Contact Brian Paul at 212-691-6421 or via email at bpaul@commoncause.org with any questions you may have.

This report is available online at: www.commoncause.org/NY/HedgeFunds

In just the last fifteen years, hedge funds have exploded out from the exotic fringe of the financial industry to play a growing and influential role in our economy. Managing just $2.8 billion in assets in 1995i, hedge funds now manage over $2 trillion in assetsii and have become increasingly popular investment vehicles for high net worth individuals and institutions like pension funds and university endowmentsiii. Unlike mutual funds, which are generally limited to simple buying and selling of stocks and bonds, hedge funds are free to engage in all kinds of complex investment tools and strategies including short selling, options, futures, foreign exchanges, commodities, credit swaps, and other derivativesiv. The growth of hedge funds parallels the growth of deregulation, globalization, and innovation in the larger financial industry. Many of todays most wealthy and successful hedge fund managers began their careers in the 1990s at firms like Goldman Sachs or early hedge fund innovators like Julian H. Robertsons Tiger Global Management. Many top hedge fund managers like David Einhorn (Greenlight Capital LLC), Paul Singer (Elliott Management), Daniel Loeb (Third Point Management), and John A. Paulson (Paulson & Co.) regularly make headlines due to their immense wealth and resulting ability to move markets and affect public opinion. The wealth of hedge fund managers and executives derives from the industrys extraordinary compensation structures. The standard industry compensation rate is a 2% management fee and a 20% cut of all profits to the managerv. If a fund manages $10 billion in assets and makes a 10% return on investment in a year ($1 billion profit), this means the manager is entitled to over $200 million in compensation. The most highly regarded managers can charge even higher fees than 20%. In 2011, forty hedge fund managers earned $40 million or greater in compensation, with the top 12 each earning over $200 million, and the top three each earning over $2 billion in a single yearvi. And this was widely consider a down year for the industry. Hedge fund manager compensation, known as carried interest, is classified as capital gains in the current tax code and is often taxed at a much lower rate (15%) than regular personal income. Alongside the hedge fund industrys economic rise has been an equally rapid rise in political influence. In the year 2000, hedge funds made only $2.4 million in federal campaign contributions but by 2008 the industry contributed over $19 million at the federal level -- a figure that will likely be surpassed in the current 2012 cycle. Hedge fund millionaires and billionaires have also become increasingly involved in advocacy for specific public policies like the expansion of charter schoolsvii and legalization of same-sex marriage,viii and have played an outsized role in donating to Super PACsix since the Citizens United decision. New York City is the center of the global hedge fund industry, with hundreds of funds located mostly in the Midtown East section of Manhattan. Connecticuts Fairfield County, especially the Greenwich area, is also a hedge fund hub that is home to many firms with close connections to nearby New York City. It should come as no surprise that hedge fund executives are increasingly active in New Yorks local politics. 1

But unlike federal law, New York States campaign finance laws do not require individuals to identify their employer when making a campaign contribution. And unlike most other politically active industries, like real estate or healthcare, the vast majority of hedge fund industry contributions come from individual executives and their spouses rather than corporate PACs or trade organizations. This makes it extremely difficult to get a full picture of hedge fund political activity at the state and local level in New York. This analysis of New York State hedge fund industry political money required many hours of research to identify hedge funds and their employees within the states campaign finance database. After identifying the tri-state areas major funds as well as the largest from around the country (using hedge fund databases and top funds lists from sources including Crains, Bloomberg Businessweek, Forbes, Fundville, Hedgepedia, and other), individual hedge fund executives and their immediate family members were identified within the New York State campaign finance database and flagged for analysis.

SUMMARY
From January 2005 to February 2012, hedge funds, hedge fund executives, and their immediate family members made 3,552 campaign contributions to state and local candidates in New York. These contributions amount to $23.4 million dollars. Only $500,000 of this money came directly from hedge funds as corporate donors. The rest came from the fund managers, executives, and immediate family members donating as individuals. The vast majority of the contributions over $17.5 million came from the Top 100 identified individuals, many of whom rank among the most prolific political donors in New York State. Almost half of the contributions -- $11.1 million came from just the Top 10 identified hedge funds and their employees. Not surprisingly, individuals in the hedge fund industry tend to make large individual donations more than 70% of the total hedge fund money donated since 2005 was given in large donations of $10,000 or higher and more than 95% in donations of $2,000 or higher. Hedge fund donations peaked in the 2010 cycle when the industry contributed over $10 million to state and local candidates throughout New York. This sum ranks hedge funds alongside real estate, health care, lawyers and lobbyists, and the more traditional sectors of the financial industry at the top of the list of industry donors in the statex. But compared to these other top donor industries, hedge fund contributions appear less coordinated and targeted, and more personally dependent on the political leanings and interests of the particular wealthy executive. With sky-high contribution limits in which individuals are free to give up to $60,800 in a single year to a statewide candidate and unlimited cash to state party soft money accountsxi, New Yorks campaign finance system clearly advantages large dollar donors over ordinary New Yorkers and calls into question the role of money in influence public policy.

The Influentials: Top Hedge Fund Contributors in New York State

Since 2005, managers, executives, and their immediate family members from the following ten hedge funds contributed $11,080,261.66 to candidates, committees, and PACs across the state, representing nearly half of the total hedge fund campaign contributions identified for this report.

1. Renaissance Technologies East Setauket, NY (Suffolk County), $24 billion under management.
Founded by James Simons in 1982, Renaissance is one of the largest and most profitable hedge funds in the world. Robert Mercer, Co-CEO: $1,235,184.00 Co-CEO of Renaissance with Peter Brown since the retirement of James Simons in 2010, Mercer is a major donor to Republican national leadership at the federal level. He recently donated $1 million to Mitt Romneys SuperPAC. In 2010, Mercer made a $1 million contribution to the New York State Conservative Party soft money campaign account, instantly making him one of the top donors in the state. Mercer sometimes bundles donations with his wife and daughters. Marsha Laufer, Wife of Henry Laufer, VP of Research: $964,533.74 3

Chair of the Brookhaven Town Democratic Committee (in Suffolk County) from 2002 to 2009. During this period, Marsha Laufer made dozens of large donations to local candidates for Brookhaven and Suffolk County offices as well as state legislative and statewide Democratic candidates. Marsha and Henry Laufer are also major donors to Democrats at the federal level and were the 23rd largest donors nationwide during the 2008 cycle. Henry Laufer, VP of Research: $559,504.25 Henry Laufer has the second largest stake in Renaissance after James Simonsxii and made nearly $390 million in compensation in 2009 alone. He supports Democrats nationwide and often bundles donations with his wife Marsha. James Simons, Founder: $493,950.00 With a net worth of over $10 billion, Simons is ranked the 31st richest person in the United States according to Forbes. He retired from his role as CEO in 2010 but still plays an active role in the business. Supports Democrats nationwide, he and his wife Marilyn were the 21st largest donors nationwide during the 2010 cycle. In New York, Simons supports mostly Democrats but has also supported State Senate Republicans. Diana L Mercer, Wife of Robert Mercer, Co-CEO: Rebekah Mercer, Daughter of Robert Mercer, Co-CEO: Heather Mercer, Daughter of Robert Mercer, Co-CEO: Robert Lourie, Head of Futures Research: Marlyn Simons, Wife of James Simons, Founder: Other Renaissance Executives/Family Members: $193,984.00 $150,250.00 $146,200.00 $132,100.00 $131,600.00 $191,071.70

2. Elliott Management Corporation New York, NY, $15 billion under management. Founded in
1977 by Paul Singer, Elliott is one of the oldest and largest hedge funds in the world and is known for aggressive activist investing. Paul Singer, Founder & CEO: $569,750.00 With a net worth of $1 billion, Paul Singer is ranked the 416th richest person in the United States by Forbes.He has become increasingly involved in free-market conservative politics in recent yearsxiii and is a $1 million donor to Mitt Romneys SuperPAC. In New York, Singer is one of the states most prolific donors. He is Chairman of the Manhattan Institute and supports Republicans almost exclusively. He is strong supporter of same-sex marriagexiv, and gave max donations to the four New York Senate Republicans who voted in its favor. Jonathan D. Pollock, Co-Chief Investment Officer: $361,735.00 Mostly supports Republicans on the federal and state level, gave max donations to the four Republican State Senators who voted for same-sex marriage. Often bundles donations with his wife. Tea Nadezda Pollock, Wife of Jonathan Pollock: $227,000.00

Charles MacDonald, Portfolio Manager: $202,200.00 Donates exclusively to Republicans. He is donor to candidates nationwide and supporter of State Senate Republicans, giving max donations to the four Republican State Senators who voted for same-sex marriage. Gordon Singer, Partner: $201,400.00 Son of Paul Singer, Gordon Singer leads the London office of Elliott Management. He donates exclusively to Republicans and is a major supporter of NY State Senate Republicans, giving max donations to the four who voted for same-sex marriage as well as a $50,000 donation to the soft money account. Richard Sokolow, Director of Research: Other Elliott Management Executives/Family Members: $112,750.00 $325,450.00

3. Caxton Associates LP Princeton, NJ, $3 billion+ under management. Founded in 1983 by Bruce
Kovner, Caxton is also one of the oldest continually operating hedge funds. Bruce Kovner, Founder: $899,100.00 With a net worth $4.5 billion, Bruce Kovner is ranked the 73rd richest person in the United States by Forbes. Kovner directly managed the fund until his retirement in September 2011. He is a major donor to the Republican national leadership, a trustee of the American Enterprise Institute, and recently gave $500,000 to Mitt Romney's SuperPAC. In New York State, almost all his donations are to Senate Republicans and Charter School PACs. Kovner is also a noted supporter of the arts; he is the Chair of the Juilliard School of Music and on the board of Lincoln Center and the Metropolitan Opera. Suzanne Kovner, Wife of Bruce Kovner: Other Caxton Associates Executives/Family Members: $167,800.00 $5,900.00

4. Soros Fund Management New York, NY, $25 billion under management. Founded in 1973 by
George Soros, the fund has produced over $32 billion in profits since its inceptionxv. In 2011 Soros Fund Management announced that it would be closing to outside investors and managing only the Soros family funds going forward. George Soros, Founder: $322,500.00 With a net worth of roughly $20 billion, George Soros is the 12th richest person in USA according to Forbes. He is known for his active support of the national Democratic Party and progressive non-profit and charitable organizations. In NYS he has supported Senate Democrats, Attorney General Eric Schneiderman (D), and issue-based PACs. Robert Soros, Managing Partner: $270,723.27 One of George Soros' two sons, he generally follows the same contribution patterns as his father, giving generously to State Senate Democrats and Eric Schneiderman over the past seven years. Often bundles donations with his wife Melissa. 5

Melissa Schiff-Soros, Wife of Robert Soros:

$165,500.00

Jonathan Soros, Deputy Chairman & President: $138,500.00 One of George Soros' two sons, he generally follows the same contribution patterns as his father, giving generously to State Senate Democrats and Eric Schneiderman over the past seven years. He recently stepped down from Soros Fund Management to start his own fundxvi. Other Soros Fund Management Executives/Family Members: $18,075.00

5. Greenlight Capital New York, NY, $6.5 billion under management. Founded by David Einhorn in
1996. David Einhorn, Founder: $396,900.00 With a net worth of $1.1 billion, David Einhorn is the 390th richest person in USA according to Forbes. Supports Democrats nationwide but not as deeply involved in politics as some of the other top managers on this list. In NY, supports statewide Democratic candidates and charter school PACs Cheryl Einhorn, Wife of David Einhorn: Vinit K. Sethi, Partner: Other Greenlight Capital Executives/Corp Donations: $100,100.00 $62,600.00 $33,129.88

6. York Capital Management New York, NY, $4 billion under management. Founded by James Dinan
in 1991. James G. Dinan, Founder: $272,800.00 With a net worth of $1.6 billion, Dinan is the 286th richest person in America according to Forbes. Donates exclusively to Democrats on all levels, in New York he is major contributor to Governor Cuomo and New York City Council Speaker Christine Quinn. In March of 2011, Dinan gave a $100,000 donation to the NY State Democratic Committee soft money account. Elizabeth R. Miller, Wife of James Dinan Other York Capital Management Executives/Family Members: $179,300.00 $86,250.00

7. Third Point Management, LLC New York, NY, $2.5 billion under management. Founded by Daniel
Loeb in 1995. Daniel Loeb, Founder: $456,667.00 With a net worth of $1.2 billion, Daniel Loeb is the 368th richest person in the USA according to Forbes. He supported national Democrats in 2008 cycle but switched to Republicans in 2010 and 2012. In New York, Loeb is a supporter of both Governor Cuomo and the Senate Republicans. Margaret M. Loeb, Wife of Daniel Loeb: $31,000.00 6

8. EnTrust Capital Partners LP New York, NY, $6.5 billion under management. Founded in 1997 by
Mark Fife, Michael Horowitz, and Gregg Hymowitz Gregg Hymowitz, Co-Founder: $222,070.77 Former VP at Goldman Sachs before starting EnTrust in 1997. Donates exclusively to Democrats, one of the largest supporters of Governor Cuomo. Mark Fife, Co-Founder: $75,700.00 Donates exclusively to Democrats, mostly to former Governor Spitzer and Governor Cuomo. Deborah Hymowitz, Wife of Gregg Hymowitz: $72,450.00

Michael Horowitz, Co-Founder: $63,650.00 Donates exclusively to Democrats, mostly to former Governor Spitzer and Governor Cuomo. Other EnTrust Capital Executives/Corp Donations: $12,550.00

9. Gracie Capital New York, NY, $2 billion+ under management. Founded by Daniel Nir in 1999.
Acquired by the investment bank Moelis & Co in 2010. Jill Braufman, Wife of Daniel Nir: $250,658.05 Wife of Gracie Capital founder Daniel Nir, active supporter of the Democratic Party, pro-choice PACs, and the arts. Donating exclusively to Democrats, Braufman is major supporter of Governor Cuomo, Eric Schneiderman, Senate Democrats, and NYC Council Speaker Christine Quinn. Daniel Nir, Co-Founder: $140,775.00 Donates almost exclusively to Democrats, was one of the largest supporter of Eric Dinallos campaign for Attorney General. Other Gracie Capital Executive Donations: $25,000.00

10. Eagle Capital Management -- New York, NY, $10 billion+ under management. Founded in 1988 by
Ravenal Boykin Curry III. Ravenal Boykin Curry IV, Managing Partner: $329,650.00 Managing Partner of the hedge fund founded by his father. Curry IV supports almost exclusively Democrats at both the federal and New York State level. He is major supporter of charter schoolsxvii and is board member of Democrats for Education Reform. Ravenal Boykin Curry III, Founder: Other Eagle Executives/Family Members: $53,651.00 $29,550.00

Other New York State Hedge Fund Executives with $100,000+ in Contributions since 20051:
Charles Ledley, Founder, Cornwall Capital Inc: John Petry, Principal, Columbus Hill Capital Management: Frank V. Sica, Managing Partner, Tailwind Capital: James Chanos, Founder, Kynikos Associates LP: William A. Ackman, Founder, Pershing Square Capital Management: Jeffrey Halis, Founder, Tyndall Management LLC: Orin Kramer, Managing Partner, Boston Provident: John A. Paulson, Founder, Paulson & Co.: Richard H. Adelaar, Executive VP, Peconic Partners LLC: Anthony Davis, Founder, Anchorage Advisors LLC: Stanley Druckenmiller, Founder, Duquesne Capital Management: Robert S. Coburn, Managing Director, Atticus Capital LP: Paul Tudor Jones, Founder, Tudor Investment Corporation: John Fitzgibbons, Founder, Deerpath Capital Management LP: Harry Wilson, Partner, Silver Point Capital: Julia E. Greenblatt, Wife of Joel Greenblatt, Gotham Capital LLC: John S. Dyson, Founder, Millbrook Capital Management: Louis Bacon, Founder, Moore Capital Management LP: Cathy Lasry, Wife of Marc Lasry, Avenue Capital Group: Rafael Mayer, Founder, Khronos LLC: Joel M. Greenblatt, Founder, Gotham Capital LLC: Peter Briger, Principal, Fortress Investment Group: Jan Van Eck, Principal, Van Eck Global: Thomas Kempner Jr., Founder, Davidson-Kempner Capital Mgmt: Julian H. Robertson, Founder, Tiger Management Corp: Jonathan Sandelman, Founder, Sandelman Partners LP: Glenn R. Dubin, Founder, Highbridge Capital Management: $302,174.65 $282,425.00 $265,287.00 $250,658.05 $247,950.00 $181,225.00 $168,725.00 $168,500.00 $166,350.00 $165,925.00 $163,402.00 $151,460.33 $149,900.00 $147,852.00 $129,450.00 $128,800.00 $128.650.00 $127,050.00 $124,785.28 $124,400.00 $120,800.00 $115,324.21 $114,441.70 $110,000.00 $108,527.00 $107,450.00 $101,100.00

For a detailed spreadsheet on all the hedge fund contributions and contributors identified for this report contact Brian Paul at Common Cause/NY bpaul@commoncause.org

Spreading Hedge Fund Money Around

Hedge fund industry donors are active in races all across New York State but contribute most heavily to statewide races, state party soft money accounts, State Senate candidates, and local candidates and committees in the New York City metropolitan area.

2005 February 2012

Since 2005, over 40% of hedge fund contributions have gone to candidates for Governor and Attorney General, with over $6.3 million going to campaigns for Governor and more than $3.1 million to campaigns for Attorney General. The concentration of money in statewide campaigns reflects the sky-high contribution limits for these offices in New York State. Individuals are free to give up to $60,800 in a single year to candidates for Governor, Attorney General, and Comptroller, one of the least restrictive limits in the nationxviii.

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Looking at the Top 20 candidates receiving hedge fund dollars since 2005, a focus on the statewide offices is clear. Led by current Governor Andrew Cuomo (D) and former Governor Eliot Spitzer (D), 14 of the Top 20 recipients are statewide candidates. Two of the other Top 20 candidate recipients are County Executive candidates, another office that has a sky-high campaign contribution limit of upwards of $30,000 per individual per year. Only one New York City candidate, Council Speaker and 2013 Mayoral candidate Christine Quinn (D), appears on the Top 20 list. This is clearly an effect of New York Citys Public Financing program. In addition to matching the first $175 of any individual donation 6 to 1 with public money, New York City enforces an individual contribution limit of $4,950 much lower than the state levelxix. Speaker Quinn received a total of twenty-seven max contributions from hedge fund donors, so it is safe to say that her campaign tally and those of other City candidates would be far higher if not for these stricter limits. All New York City candidates, including Speaker Quinn, received roughly $750,000 from hedge funds donors combined. This is a very small (3%) slice of the total pie, despite the fact that most hedge funds are based in New York City. The Top 20 Candidates list is rounded out by the presence of three State Senators, former Senator Craig Johnson (D) of Nassau County, and Senator Stephen Saland (R). Contribution limits for State Senators are currently $16,800 per year per individual in New York State. In addition to candidates, hedge fund donors have given almost $5 million to the state party committee accounts commonly known as soft money accounts. In New York State, some of these accounts have no limits at all on the size of individual donations. In 2010, Robert Mercer of Renaissance Technologies gave a $1 million contribution to the State Conservative Party Headquarters Account. Five other hedge fund managers identified for this report have given checks of $100,000 or more to party soft money accounts. Nearly half of the soft money given by hedge fund donors went to State Senate campaign committee accounts, with Senate Republicans raking in roughly $1.3 million and Senate Democrats roughly $910,000. In addition to the soft money, hedge fund donors have given almost $2.5 million to State Senate candidates.

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2005 February 2012

The closely divided New York State Senate is a political battleground for hedge fund donors. The nearly equal partisan divide in giving in the State Senate since 2005 is not due to a coordinated industry strategy to influence both parties. It is instead the result of highly partisan individual donors opening their check books to fund their favored partys mission to control the chamber. As the profiles of the top 12

hedge fund donors above indicate, very few hedge fund donors give to both the Republican and Democratic parties. In sharp contrast to the highly competitive State Senate, candidates in the Democrat-dominated State Assembly received only $370,000 from hedge fund donors and State Assembly soft money accounts only $35,000. This may be the result of disinterest on the part of hedge fund donors in funding candidates for a chamber in which one party is firmly entrenched. The lack of a competitive Republican Assembly conference also reduces the need of Democratic Assembly members to raise money and solicit donations from the hedge fund industry. Examining hedge fund giving in the Senate illustrates how its highly individualized and often driven by the personal policy interests of the donor and a desire to make an impact on a particular issue. Looking at the Top 10 State Senate Candidate recipients, a pattern becomes clear. The high level of donations to seven of the Top 10 Senate candidates is clearly linked to advocacy of two policy issues -- the legalization of same-sex marriage and the expansion of charter schools.

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The four Republican State Senators who voted in favor of legalizing same-sex marriage Stephen Saland, Roy McDonald, James Alesi, and Mark Grisanti all received multiple max donations from Paul Singer, his sons, and other executives at Elliott Management Corporation, as well as Daniel Loeb at Third Point Management and Robert Ziff of Och-Ziff Capital Management. These donations all came in the months following the successful passage of same-sex marriage through the State Legislature. The top Senate candidate recipient of hedge fund dollars, Craig Johnson (D), was a vocal proponent of charter schoolsxx and held office in a highly competitive swing district in Nassau County from 2007 to 2010 when he lost his bid for re-election by less than 500 votes. In March 2010, Whitney Tilson, managing partner of the hedge fund T2 Partners LLC and board member of Democrats for Education Reform (DFER), wrote that Craig Johnson may have single handedly saved charter schools in NY StateDFER helped Sen. Johnson get elected and our confidence in him has paid off BIG TIME.xxi The two Democratic Senate candidates at the bottom of the Top 10 list, Basil Smikle and Lynn Nunes, are charter school advocates who unsuccessfully challenged incumbent Senators Bill Perkins and Shirley Huntley, politicians known to be less friendly to charter school expansion. The #11 highest hedge fund State Senate candidate recipient is Mark Pollard, the third pro-charter school candidate who challenged a New York City Democratic incumbent, Velmanette Montgomery, in the 2010 primaries on this issue. Each of these three primary challengers received the majority of their campaign funding from procharter school hedge fund executives, including Ravenal B. Curry IV (Eagle Capital Management), William Ackman (Pershing Square Capital Management), Rafael Meyer (Khronos LLC), Anthony Davis (Anchorage Advisors LLC), Charles Ledley (Cornwall Capital), Brian Zied (Charter Bridge Capital), and Whitney Tilson (T2 Partners). These hedge fund executives, among others, also gave over $800,000 to pro-charter school PACs like Democrats for Education Reform and the Coalition for Public Charter Schools PAC. While Common Cause/NY takes no position on these two issues, we are concerned by the ability of a small number of high-dollar donors to exert undue influence over policy choices and outcomes. This power, a direct result of the lax campaign finance regulations in our state, can have a chilling effect on public debate and discourse. A candidate for office may reconsider supporting particular policies if he/she knows that a well-financed primary opponent or grassroots advertising campaign can suddenly appear if his/her position is in opposition to the preferences of this small elite of high-dollar donors.

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Shifting Trends at Federal and New York State Levels

Hedge fund campaign contributions at both the New York and federal levels are on the rise and increasingly shifting from the Democratic Party to the Republican Party.

At the federal level, hedge fund industry contributions are tracked by the Center for Responsive Politics (viewable at their website www.opensecrets.org) and the data reveals growing political clout. The 2000 Presidential cycle was the first time the industry topped $2 million in federal giving before this, hedge funds were largely insignificant in the world of campaign finance. The 2006 midterm cycle was the first in which the hedge fund industry gave more than $5 million at the federal level. Donations then exploded to over $18 million during the 2008 Presidential cycle and hit almost $12 million in the 2010 midterms double the 2006 midterms rate of giving. As the chart above illustrates, hedge funds gave overwhelmingly to Democrats in the 2006 and 2008 cycles. But in the 2010 midterm cycle, the balance of giving suddenly shifted to the Republican Party for the first time a trend that was widely noted by the media in the wake of the Republican electoral victories in Congress.xxii Most explanations for this shift point to backlash in the hedge fund industry

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against President Obamas increasingly populist rhetoric and proposals like the Buffet Rule to tax hedge fund managers income at a substantially higher rate. In the 2012 cycle thus far, federal hedge fund giving has shifted further towards the Republican Party, buttressed by the advent of SuperPACs. Six of the New York State hedge fund donors identified in this report Julian Robertson (Tiger Global Management), Robert Mercer (Renaissance Technologies), John Paulson (Paulson & Co.), Paul Singer (Elliott Management Corp), Louis Bacon (Moore Capital Group), and Bruce Kovner (Caxton Associates) have given $500,000 or more to Mitt Romneys SuperPAC Restore Our Future.xxiii Looking at comparable data from state and local level elections within New York, hedge fund donations have also peaked in cycles where the executive seat is at stake. It is striking that in the 2006 election cycle, hedge fund donors actually gave more campaign money at the New York State and local level than on the federal level. This nearly happened again in the 2010 cycle, when hedge fund donors gave over $10 million to New York State and local races and roughly $11.5 million at the federal level. It appears that New Yorks notoriously lax campaign finance laws are playing a role in inflating New York giving compared to federal (although Super PACs may now help close the gap). The shift of hedge fund campaign money from Democrats to Republicans that we see at the federal level also holds for New York.

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In the 2006 and 2008 cycles, hedge fund donors at the state and local level in New York gave to Democratic candidates and committees over Republicans at a rate of greater than 4 to 1. In the 2010 cycle the overall Democratic Party advantage narrowed to closer to 2 to 1 and in the 2012 cycle thus far, Republican candidates and committees have received more donations than Democrats, $1.4 million to $1.1 million. While hedge fund contributions for Governor Cuomo have remained fairly strong, hedge fund donor support for the State Senate Democrats completely collapsed following the 2010 elections.

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The Need for Fair Elections Reform in New York State

In many ways, the rapid rise of hedge funds political giving is representative of the larger problems of money in politics affecting the nation today. Lax campaign finance laws create an environment in which influence and access can be bought by wealthy and powerful individuals and organizations. Its a classic vicious cycle: special interests and high-dollar donors pour more and more money into the system, increasing the amount of money a candidate must raise to compete, which then makes candidates more and more dependent on special interests and high dollar donors. New Yorks debate over education policy, for example, is dominated by a political money war between the teachers unions on one side and the charter school organizations backed by hedge fund dollars on the other. The opportunity for ordinary citizens to engage is often lost. Another way that unlimited flows of political money distort public policy is by constraining officials options an official or candidate must always consider how a policy decision might affect the flow of cash from big donors. One such policy issue in New York relating to hedge funds is a glaring tax loophole that currently exists regarding hedge fund managers compensation. New York City has a 4% business tax on all individuals and unincorporated entities like LLCs and partnerships called the unincorporated business tax (UBT)xxiv. In a loophole dating back to the 1930s, carried interest income (such as hedge fund managers 20% share of the funds profits) is exempt from this tax. This loophole is intended to protect partners who invest their own capital from being taxed twice through personal income tax and the UBT. But since hedge fund managers compensation is not taxed as personal income, it ends up exempt from both. The Independent Budget Office and Fiscal Policy Institute estimate that closing New York Citys UBT loophole could net the City $200 million+ in additional tax revenue each year.xxv Any change to this law must go through Albany but for some reason, closure of this blatant loophole has never been seriously considered by the State Legislature. A recent Siena poll showed that 74% of New Yorkers from across the state and the political spectrum want fairer elections. Reforming New York States campaign finance laws can help open debate on public policy and restore fair elections. Public financing has been highly effective in New York City at encouraging democratic participation and curbing the influence of large donors and special interests. In 2009, City Council candidates who opted into New York Citys public financing system received roughly 25% of their total campaign cash from small donors giving amounts of $200 or less. The corresponding figure for State officials is abysmally low 7% overall, with some individual state legislators clocking in at less than 2%xxvi. As long as the rules of the game make politicians accountable to the corporations, lobbyists, and small groups of extremely wealthy individuals like hedge fund managers who finance their campaigns, theyre never going to be accountable to the public who elected them. 18

ENDNOTES
i

Angle Ubide. Demystifying Hedge Funds. Finance & Development: A Quarterly Magazine of the IMF. June 2006. http://www.imf.org/external/pubs/ft/fandd/2006/06/basics.htm
ii

Jenny Strasburg and Steve Eder. Hedge Funds Bounce Back. The Wall Street Journal. April 18, 2011. http://online.wsj.com/article/SB10001424052748704204604576269114056530484.html
iii

Christine Williamson. Institutional Share Growing for Hedge Funds. Pensions and Investments. February 10, 2011. http://www.pionline.com/article/20110210/DAILYREG/110219980.
iv

Ubide. ibid ; Duff McDonald. The Running of the Hedgehogs. New York Magazine. April 9, 2007. http://nymag.com/news/features/2007/hedgefunds/30341/ Matthew Goldstein and Steve Rosenbush. Hedge Fund Fees: The Pressure Builds. May 14, 2007. http://www.businessweek.com/magazine/content/07_20/b4034053.htm
vi v

Nathan Vardi. The 40 Highest-Earning Hedge Fund Managers. Forbes. March 3, 2012. http://www.forbes.com/sites/nathanvardi/2012/03/01/the-40-highest-earning-hedge-fund-managers-3/
vii

Nancy Hass. Scholarly Investments. The New York Times. December 4, 2009. http://www.nytimes.com/2009/12/06/fashion/06charter.html
viii

Nicholas Confessore and Michael Barbaro. Donors to GOP Are Backing Gay Marriage Push. The New York Times. May 13, 2011. http://www.nytimes.com/2011/05/14/nyregion/donors-to-gop-are-backing-gay-marriagepush.html; Adam Nagourney and Brooks Barnes. Gay Marriage Effort Attracts a Novel Group of Donors. The New York Times. March 23, 2012. http://www.nytimes.com/2012/03/24/us/gay-marriage-effort-is-attracting-a-novelgroup-of-donors.html
ix

Michelle Celarier. Mitt Romneys Hedge Fund Kingmaker. CNNMoney. March 26, 2012. http://finance.fortune.cnn.com/tag/super-pacs/ NYPIRG. Capital Investment$ 2010. January, 2011. http://www.nypirg.org/pubs/goodgov/2011.01_Capital_Investments.pdf. At page 11 rankings of corporate donations based on industry. Looking at statewide and general election only, hedge funds gave $6.7 million which would clearly rank them in the top 5 industries.
xi x

National Conference of State Legislatures. State Limits on Contributions to Candidates, 2011-2012 Election Cycle. September 30, 2011. http://www.ncsl.org/Portals/1/documents/legismgt/Limits_to_Candidates_20112012.pdf
xii

Peter J. Schwartz. Wall Streets Highest Earners. Forbes. April 8, 2009. http://www.forbes.com/2009/04/08/wall-street-highest-earners-business-wall-street-earnings.html
xiii

Celarier, ibid.

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xiv

Nagourney and Barnes, ibid.

xv

James MacKintosh. Hedge Fund Stars Shine Above the Crowd. Financial Times. September 11, 2010. http://www.ft.com/intl/cms/s/0/981a7710-bcff-11df-954b-00144feab49a.html#axzz1rwxHDNc4
xvi

Jennifer Ablan and Matthew Goldstein. Soros Son Strikes Out on His Own. Reuters. March 31, 2012. http://www.reuters.com/article/2012/03/31/us-sorosfamily-hedge-idUSBRE82T19C20120331
xvii

Hass, ibid.

xviii

National Conference of State Legislatures. State Limits on Contributions to Candidates, 2011-2012 Election Cycle. September 30, 2011. http://www.ncsl.org/Portals/1/documents/legismgt/Limits_to_Candidates_20112012.pdf
xix

New York City Campaign Finance Board. New Legislation Alters Fundraising Rules and Limits for 2009 Election. http://www.nyccfb.info/press/news/press_releases/2007-07-16.Pdf?Sm=Press_&zoom_highlight=limits).
xx

Fred Dicker and Carl Campanile. Teaching Unions a Thing or Two. The New York Post. May 11, 2010. http://www.nypost.com/p/news/local/bronx/teaching_unions_thing_or_two_cyCwBRkyCjpHeaeJkfIcKO
xxi

Whitney Tilson. Fundraiser for NY State Senator Craig Johnson. March 13, 2010. http://edreform.blogspot.com/2010/03/fundraiser-for-ny-state-senator-craig.html
xxii

Brody Mullins, Susan Pulliam, and Steve Eder. Financiers Switch to GOP. The Wall Street Journal. April 26, 2011. http://online.wsj.com/article/SB10001424052748703461504576231121265117538.html ; Alec MacGillis. The Big Split. The New Republic. March 14, 2012. http://www.tnr.com/article/politics/magazine/101726/obamawall-street-donors-campaign-finance-tax
xxiii

Celarier, ibid.

xxiv

New York City Department of Finance. Business and Excise Taxes. http://www.nyc.gov/html/dof/html/business/business_tax_ubt.shtml#rates
xxv

Fiscal Policy Institute. Rethinking the New York City Business Tax Treatment of Private Equity Fund and Hedge Fund Carried Interest. April 15, 2008. http://www.fiscalpolicy.org/FPI_RethinkingTaxTreatmentOfCarriedInterest.pdf ; New York City Independent Budget Office. Budget Options for New York City. April 2011. http://www.ibo.nyc.ny.us/iboreports/options2011.pdf
xxvi

Michael J. Malbin and Peter W. Brusoe. Small Donors, Big Democracy, New York Citys Matching Funds as a Model for the Nation and States . Campaign Finance Institute, 2011.

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