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

1

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 today’s most wealthy and successful hedge fund managers began their careers in the

1990’s at firms like Goldman Sachs or early hedge fund innovators like Julian H. Robertson’s 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 industry’s 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 industry’s 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. Connecticut’s 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 York’s local

politics.

2

But unlike federal law, New York State’s 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 state’s campaign finance database. After

identifying the tri-state area’s 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 York’s campaign

finance system clearly advantages large dollar donors over ordinary New Yorkers and calls into question

the role of money in influence public policy.

3

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 Romney’s 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

4

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: $193,984.00

Rebekah Mercer, Daughter of Robert Mercer, Co-CEO: $150,250.00

Heather Mercer, Daughter of Robert Mercer, Co-CEO: $146,200.00

Robert Lourie, Head of Futures Research: $132,100.00

Marlyn Simons, Wife of James Simons, Founder: $131,600.00

Other Renaissance Executives/Family Members: $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 Romney’s SuperPAC. In New York, Singer is one

of the state’s 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

5

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: $112,750.00

Other Elliott Management Executives/Family Members: $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: $167,800.00

Other Caxton Associates Executives/Family Members: $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.

6

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: $100,100.00

Vinit K. Sethi, Partner: $62,600.00

Other Greenlight Capital Executives/Corp Donations: $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 $179,300.00

Other York Capital Management Executives/Family Members: $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

7

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 Dinallo’s

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: $53,651.00

Other Eagle Executives/Family Members: $29,550.00

8

Other New York State Hedge Fund Executives with $100,000+ in Contributions since 20051:

Charles Ledley, Founder, Cornwall Capital Inc: $302,174.65

John Petry, Principal, Columbus Hill Capital Management: $282,425.00

Frank V. Sica, Managing Partner, Tailwind Capital: $265,287.00

James Chanos, Founder, Kynikos Associates LP: $250,658.05

William A. Ackman, Founder, Pershing Square Capital Management: $247,950.00

Jeffrey Halis, Founder, Tyndall Management LLC: $181,225.00

Orin Kramer, Managing Partner, Boston Provident: $168,725.00

John A. Paulson, Founder, Paulson & Co.: $168,500.00

Richard H. Adelaar, Executive VP, Peconic Partners LLC: $166,350.00

Anthony Davis, Founder, Anchorage Advisors LLC: $165,925.00

Stanley Druckenmiller, Founder, Duquesne Capital Management: $163,402.00

Robert S. Coburn, Managing Director, Atticus Capital LP: $151,460.33

Paul Tudor Jones, Founder, Tudor Investment Corporation: $149,900.00

John Fitzgibbons, Founder, Deerpath Capital Management LP: $147,852.00

Harry Wilson, Partner, Silver Point Capital: $129,450.00

Julia E. Greenblatt, Wife of Joel Greenblatt, Gotham Capital LLC: $128,800.00

John S. Dyson, Founder, Millbrook Capital Management: $128.650.00

Louis Bacon, Founder, Moore Capital Management LP: $127,050.00

Cathy Lasry, Wife of Marc Lasry, Avenue Capital Group: $124,785.28

Rafael Mayer, Founder, Khronos LLC: $124,400.00

Joel M. Greenblatt, Founder, Gotham Capital LLC: $120,800.00

Peter Briger, Principal, Fortress Investment Group: $115,324.21

Jan Van Eck, Principal, Van Eck Global: $114,441.70

Thomas Kempner Jr., Founder, Davidson-Kempner Capital Mgmt: $110,000.00

Julian H. Robertson, Founder, Tiger Management Corp: $108,527.00

Jonathan Sandelman, Founder, Sandelman Partners LP: $107,450.00

Glenn R. Dubin, Founder, Highbridge Capital Management: $101,100.00

1 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

9

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.

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.

22000055 –– FFeebbrruuaarryy 22001122

10

11

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 City’s 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.

12

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 party’s mission to control the chamber. As the profiles of the top

22000055 –– FFeebbrruuaarryy 22001122

13

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 it’s 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.

14

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

State…DFER 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 pro-

charter 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.

15

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

16

against President Obama’s 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 Romney’s 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 York’s 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.

17

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.

18

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. It’s 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 York’s 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 1930’s, “carried interest” income (such as hedge fund

managers’ 20% share of the fund’s 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

City’s 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 State’s 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 City’s 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, they’re

never going to be accountable to the public who elected them.

19

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/

v 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 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-marriage-

push.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-novel-

group-of-donors.html

ix Michelle Celarier. “Mitt Romney’s Hedge Fund Kingmaker.” CNNMoney. March 26, 2012.

http://finance.fortune.cnn.com/tag/super-pacs/

x 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 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_2011-

2012.pdf

xii Peter J. Schwartz. “Wall Street’s 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.

20

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

xviJennifer 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_2011-

2012.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/obama-

wall-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 City’s Matching Funds as a

Model for the Nation and States .“ Campaign Finance Institute, 2011.

21