Hedge Funds Use Donations to Boost Clout

April 18, 2012 · by fair_admin

Wall Street Journal

4/18/12

Andrew Grossman

http://online.wsj.com/article/SB10001424052702304432704577350314102280568.html?mod=googlenews_wsj

Hedge funds have emerged as a force in New York state politics in the past seven years, funneling tens of millions of dollars to political parties, pet causes and candidates from both major parties, according to a report set to be released on Wednesday.

The donations have swelled as hedge funds grow in number and wealth. In 2006, whenEliot Spitzer was elected governor, hedge-fund executives, employees and their families gave $4.1 million to New York state and local candidates and political committees. In 2010, when Gov. Andrew Cuomo was elected, that number rose 73.5%, to $7.1 million, according to the report by Common Cause New York, a group that advocates for a campaign finance overhaul, among other issues.

Hedge-fund political giving still lags behind New York’s traditional power players such as labor unions and the real-estate industry. And, unlike those special interests, hedge-fund executives don’t appear to have a clear agenda designed to benefit their businesses. Instead, they have funded causes such as the successful legalization of gay marriage in 2011 and promoting charter schools, which have seen their numbers rise.

“What distinguishes the hedge-fund industry from a more traditional large giver like the real-estate industry is the extraordinary amount of money that individuals in the hedge-fund industry have,” said Susan Lerner, Common Cause New York’s executive director. “What we see is an aggressive willingness to use their money to influence public policy in whatever way appeals to them personally.”

The report is being released as Common Cause and other similar groups begin a push to convince lawmakers and Mr. Cuomo, a Democrat, to impose lower limits on campaign contributions and create a public funding system for state campaigns similar to New York City’s.

The rise of hedge funds in New York comes as they increasingly flex their muscles on the federal level, where they are regulated.

Hedge-fund executives have backed several super PACs—political action committees that can receive unlimited donations—in the presidential election. And their donations to federal candidates have risen from $2.5 million in 2000 to $19 million in 2008 to more than $12 million so far in 2012, according to the Center for Responsive Politics, a Washington group that tracks political giving.

In New York, hedge-fund executives tend to write checks on their own, unlike real-estate executives or unions that pool their money to support their interests. Often, hedge-fund donations work at cross purposes with one another.

“There are so many other industry groups that do this on a much more partisan basis,” said Timothy Selby of the New York Hedge Fund Roundtable, an industry group that doesn’t take stands on political issues.

The diffuse nature of hedge-fund giving is illustrated by Renaissance Technologies LLC, a Long Island firm that relies on mathematicians to program computers that do most of its trading. One executive there, Robert Mercer, and his family donated $1.4 million to the state Conservative Party in 2009 and 2010. The donations were largely meant to help former Republican Rep. Rick Lazio’s gubernatorial bid, said party Chairman Michael Long. A $1 million check was likely the party’s largest ever, Mr. Long said. Mr. Mercer declined to comment.

But for much of the last decade, one of Mr. Mercer’s colleagues at Renaissance, Henry Laufer, and his wife, Marsha, have been devoting part of their fortune to electing Democrats in Suffolk County—part of which Mr. Lazio once represented in Congress. The Laufers declined to comment.

Hedge funds are far from being the largest political givers in New York politics. Unions gave $20.9 million in 2010, according to the New York Public Interest Research Group. Real-estate and construction firms gave $13.9 million, while lawyers and lobbyists gave $8.1 million. “Who’s the most powerful, broad general interest group? It’s unions,” said E.J. McMahon, a senior fellow at the Manhattan Institute, a right-leaning think tank.

What makes hedge-fund money different, Ms. Lerner said, is the small number of individuals who give it. She said no one union member can write a check for $1 million.

State Sen. James Alesi is one beneficiary of hedge-fund money. The Rochester Republican took in about $150,000 from people in the industry, Common Cause said. Much came from a group that supported senators like Mr. Alesi who backed same-sex marriage against the wishes of his party. He is now facing a well-funded primary challenge.

“If there’s some kind of an insinuation that money guided the vote, I can tell you that we’re never going to match funding that National Organization for Marriage will spend,” Mr. Alesi said, referring to an anti-same-sex marriage group. “Most of us will be wiped out financially after Republican primaries.”