When he ran for president in 2008, Barack Obama enjoyed especially enthusiastic support from liberals, college kids and, surprisingly, many hedge fund managers. But as the country gears up for one of the most crucial — and cantankerous — midterm elections ever, several of the smart-money set who say they’re not beholden to any party have pledged allegiance to the GOP.
One household-name hedge fund manager who considers himself a “middle-of-the-road guy” insists that “people who voted for Obama are disillusioned.” As Kenneth Gross, a Skadden Arps partner who leads that firm’s political law practice, points out, “Hedge funds tend to be more ideological, but even ideological money has moved away from the Obama Administration.”
To be sure, staunch Democratic supporters like George Soros and Avenue Capital Group co-founder Marc Lasry will probably remain Obama supporters. And devoted Republicans, like Caxton’s Bruce Kovner and Elliott Associates’ Paul Singer, won’t waver in their loyalty to the other side of the aisle, either.
But what is interesting is the degree of disillusionment with Obama among hedge fund managers who regard themselves as political free agents. Not only have many lost confidence in Obama, they’ve lost faith in the Democratic Party.
For example, SAC Capital Advisors’ Steve Cohen, who supported Obama in 2008, recently hosted a fundraiser for Republicans. Sources say Cohen is alarmed about the nation’s swelling deficits.
Another very well-known hedge fund manager became disenchanted when the president tackled health care head-on. The long and contentious debate over Obamacare created too much uncertainty in the business community, this manager asserts. At the time, he called Obama’s pursuit of universal health care an “ego exercise.” And though this manager endorsed some of the president’s financial reforms, he says that “the time wasted and the uncertainty this caused businesses is unforgivable.”
Obama’s foreign policy also upset several hedge fund managers who’d donated to his campaign. They brand the push to rid the world of nuclear weapons, talk to sworn enemies such as Iran, and withdraw from Afghanistan “naive.”
One manager was stunned when last June Obama canceled president George W. Bush’s plan to install a missile-defense system in Poland and the Czech Republic chiefly to safeguard against attack from Iran. “This was a shocking turn,” the hedge fund manager said at the time. He was also upset by Obama’s “blowing off” Israeli prime minister Benjamin Netanyahu on a White House visit.
Perhaps the most outspoken — and public — critic of Obama among heretofore sympathetic hedge fund managers is Third Point’s Dan Loeb. In his second-quarter letter to clients, Loeb asserted that the Securities and Exchange Commission suit against Goldman Sachs over mortgage-related activities was a tipping point. Already shaky investor confidence, he argued, all but collapsed in the face of worrisome new laws and regulations that many saw as intended more to redistribute wealth than to promote growth, and to be contrary to free-market ideals.
“Washington has taken actions over the past months, like the Goldman suit, that seem designed to fracture the populace by pulling capital and power from the hands of some and putting it in the hands of others,” wrote Loeb. In the same letter, however, he also criticized “inept executives in regulated financial institutions who bury their shareholders and then walk away with ill-gotten sacks of loot.”
Loeb’s peroration would have done Glenn Beck proud. “Perhaps our leaders will awaken to the fact that free market capitalism is the best system to allocate resources and create innovation, growth and jobs,” he told his clients. “Perhaps they will see the folly of generating greater deficits by ‘investing’ in programs that lead to corruption and distortions of the system. Perhaps too, a cloven-hoofed, bristly haired mammal will become airborne and the rosettelike marking of a certain breed of ferocious feline will become altered. In other words, we are not holding our breath.”
Yet at least one well-known hedge fund manager who expresses deep disappointment in Obama says that he may not vote Republican in November. “I vote for the person who is better for the country at the time,” he says. By the same token, he insists that he “doesn’t care” if he has to pay the president’s proposed tax hikes on “higher earners” if that would help the overall economy.
Likewise, Appaloosa Management’s David Tepper recently said on CNBC that he would support Democratic proposals to tax carried interest (a share of profits in a partnership, such as a hedge fund) as ordinary income rather than capital gains — which could considerably increase Tepper’s tax bill — as long as he was given ample warning. “Just don’t spring it on me,” he said. “I need time to make a plan. I’m not moving to the Caymans.”
