One year ago
»» Podesta Group lobbyist Andy Lewin took a glimpse into a world beyond the midterm elections and predicted what the rapid rise of the Tea Party could mean for hedge funds.
“Tea Party members and Republicans generally would likely agree to oppose discriminatory changes to carried interest taxation and would probably oppose attempts made during the Dodd-Frank process to effectively tax hedge funds to pay for systemic risk regulation,” Lewin said. “At the same time, populist Tea Partiers tend to distrust Wall Street and big banks as much as those on the left and, like most members of Congress, many of them likely wouldn’t distinguish between Wall Street and hedge funds.”
Lewin was mostly correct, as Tea Party members fell into ranks with fellow GOP congressmen to compel President Barack Obama to extend Bush-era tax cuts for wealthy Americans. But they did not prove much of a force against big banks or hedge funds, despite distaste for the wealthy institutions from many mainstream voters who propelled the Tea Party to its political gains.
Reflecting back this week, Lewin told AR “the prediction that the Tea Party would value confrontation over compromise has been borne out, from the April government shutdown fight to the debt ceiling debacle to the most recent government shutdown mess just this week."
“On taxes, the influence of the Tea Party has been apparent on everything from carried interest to marginal rates, with the Tea Party pushing House and Senate Republicans and the Republican presidential candidates to the right of Ronald Reagan on a lot of tax issues, and even the general notion that some taxes might, once in awhile, have to increase just a little bit. Most Tea Party members haven't gotten into the weeds on hedge fund-specific issues, but their presence and devotion to confrontation has created (or at least exacerbated) a volatile environment in which hedge funds have to operate,” Lewin wrote in an email.
»» D.E. Shaw managing director Darcy Bradbury was unanimously re-elected chair of the board of the Managed Funds Association, the hedge fund industry’s chief lobbying group.
Bradbury, along with a host of new board members from such firms as AQR Capital, Highbridge Capital Management and TPG-Axon Capital, was tasked with staying on top of new regulations.
Last week, Maverick Capital chief operating officer William Goodell, who was also previously the former general counsel for Julian Robertson’s Tiger Management, was unanimously elected as the MFA’s new two-year chairman. In an interview with AR, Goodell said he was looking to expand the organization’s influence internationally, particularly in Europe. He also said he would continue to focus on taxes in the U.S. (see the full Q&A here).
“Perhaps the most egregious example of hedge funds being singled out is the proposal to impose an enterprise value tax,” Goodell said. “I am simply astounded to think that one form of business would be discriminated against in this way and hope that Congress will abandon that option.”
See also: Senate banking chair discusses hedge funds, An Obama backlash
Five years ago
»» The U.S. House of Representatives passed a bill calling for a “Hedge Fund Study Act” from the President’s Working Group on Financial Markets. While at the height of the market boom, the study would have examined “the potential risks hedge funds pose to investors and the financial markets.”
But the bill never made it past the Senate. Three years later, in 2009, Rep. Mike Castle (R-Del.) reintroduced the bill when Democrats took control of all three branches of government, but it did not make it out of committee. And Castle is no longer around to champion the cause, having been defeated by Christine O’Donnell last year when he ran in the GOP primary to become the party’s candidate to succeed the Senate seat vacated when Joe Biden became Vice President.
Though the study was never executed, the President’s Working Group has since released several papers that touch indirectly and directly on hedge funds. Many have been without serious bite. In one 2007 set of guidelines for “private groups of capital,” the group demonstrated a flair for the obvious when it suggested that, “Investors in a private pool of capital should carefully evaluate the strategies and risk management capabilities of the private pool to ensure that the pool’s risk profile is compatible with their own appetites for risk.”
Colleen Murray, a spokeswoman for the President’s Working Group on Financial Markets, did not respond to a request for comment.
See also: The devil in Dodd-Frank, Why the proxy access rule decision is a loss for activist hedge funds, Congress looking at offshore tax issues