Hedge-Fund Ties Help Edwards Campaign
Monday, April 23, 2007
Two years ago, former senator John Edwards of North Carolina, gearing up for his second run at the Democratic presidential nomination, gave a speech decrying the "two different economies in this country: one for wealthy insiders and then one for everybody else."
Four months later, he began working for the kind of firm that to many Wall Street critics embodies the economy of wealthy insiders -- a hedge fund.
Edwards became a consultant for Fortress Investment Group, a New York-based firm known mainly for its hedge funds, just as the funds were gaining prominence in the financial world -- and in the public consciousness, where awe over their outsize returns has mixed with misgivings about a rarefied industry that is, on the whole, run by and for extremely wealthy people and operates largely in secrecy.
A midsize but growing player in the hedge fund industry with more than $30 billion in assets, Fortress was the first hedge fund manager to go public, thereby subjecting itself to far more scrutiny. But it was an unusual choice of employment for Edwards, who for years has decried offshore tax shelters as part of his broader campaign to reduce inequality. While Fortress was incorporated in Delaware, its hedge funds were incorporated in the Cayman Islands, enabling its partners and foreign investors to defer or avoid paying U.S. taxes.
Fortress announced Edwards's hiring as an adviser in a brief statement in October 2005. Neither Edwards -- who ended his consulting deal when he launched his presidential campaign in December -- nor the firm will say how much he earned or what he did.
But his ties to Fortress were suggested by the first round of campaign finance reports released last week. They showed that Edwards raised $167,460 in donations from Fortress employees for his 2008 presidential campaign, his largest source of support from a single company.
Nearly 100 Fortress employees or their family members donated to Edwards around the time of a fundraiser his campaign held at the firm in mid-March. Senior executives, individual fund managers, lawyers and a secretary gave the maximum $2,300 donation. Three administrative or executive assistants gave smaller amounts.
Edwards's connection to Fortress is only one sign of the emergence in national politics of the booming $1.4 trillion hedge fund industry. One of the fastest-growing and most controversial segments of the worldwide investment market, it has campaigned to fend off additional federal regulation and has become increasingly generous in campaign donations.
During the 2006 midterm elections, its executives and employees accounted for $6 million in campaign contributions, the first time its giving was tracked as a separate industry, according to the Center for Responsive Politics. The investment and securities industry as a whole accounted for $65 million in federal political contributions.
Sen. Hillary Rodham Clinton (D-N.Y.) and former New York mayor Rudolph W. Giuliani (R), for whom Wall Street is an especially key constituency, count hedge fund executives as donors and fundraisers for their presidential campaigns. Hedge fund executive Paul Singer is a key adviser and fundraiser for Giuliani, whose presidential campaign collected $159,000 from employees at Singer's firm, Elliott Associates. Clinton is getting fundraising help from Lisa Perry, whose husband, Richard, runs a $12 billion hedge fund, and the former first lady got $46,000 from employees of the private equity firm Farallon Capital Management.
Sen. Christopher J. Dodd, a Democratic presidential candidate from Connecticut, home to many hedge fund firms, received $175,400 from employees of the SAC Capital Advisors hedge fund during the first quarter -- his top source of support from a single company. As chairman of the Senate Banking Committee, Dodd has opposed additional regulation of hedge funds.
One of Sen. Barack Obama's biggest presidential fundraisers is a hedge fund manager -- Orin Kramer, general partner of Boston Provident Partners LP in New York and a longtime Democratic fundraiser. Along with Sens. Carl M. Levin (D-Mich.) and Norm Coleman (R-Minn.), Obama (D-Ill.) has proposed legislation to drastically reduce offshore tax havens that includes a provision to crack down on offshore hedge funds. The senators introduced the bill after an investigation last year documented how wealthy U.S. investors had used hedge funds to evade taxes.