Key Takeaways
- • The Managed Funds Association, the hedge fund industry's trade group, is upgrading its Washington operation ahead of expected congressional fights over taxes and regulation in 2009, according to Politico.
- • Former Rep. Richard Baker (R-La.) was hired in February 2008 to lead the association's lobbying and political operation after leaving Congress and his House Financial Services Committee post.
- • The association's lobbying spending rose to $1.9 million in 2007 from $20,000 in 1998 and nothing in 2002, while candidate donations climbed from $4.9 million in 2006 to more than $10.6 million in the current cycle, per the Center for Responsive Politics.
- • Democrats' 2007 push to tax offshore accounts and treat "carried interest" as higher-taxed income prompted the industry's shift from its historically quiet posture.
- • Baker is pitching hedge funds' ties to pension, hospital and university endowment money to rebuild congressional relationships, while the association voluntarily adopts more transparent business standards.
Summary
The hedge fund industry is upgrading its Washington presence in preparation for a challenging legislative environment next year, covering taxes, regulation and other issues, according to Politico. Former Rep. Richard Baker (R-La.), who now heads the Managed Funds Association, said the industry faces challenges "almost without regard to who wins what seat in Congress or who occupies the White House."
The association was founded in 1991 and operated quietly for more than a decade. Its membership has roughly doubled over five years, from 750 members to 1,600. According to the Center for Responsive Politics, the association spent $20,000 on lobbying in 1998, the earliest year with available data, and nothing on Capitol Hill advocacy in 2002. Hedge fund donations to federal candidates were under $1 million a decade earlier.
That posture changed after Democrats took control of Congress last year and identified the industry as a potential source of revenue. The industry found itself defending against efforts to tax its offshore accounts and to subject "carried interest" earnings of investment managers to higher taxes. Lobbying costs reached $1.9 million last year, and candidate donations rose from $4.9 million in 2006 to more than $10.6 million this cycle, with four months remaining before Election Day.
Baker joined the association in February after serving on the House Financial Services Committee. He had sponsored a 1999 bill to increase regulation and transparency of the industry, which stalled after hedge fund resistance. Under his leadership, the association is voluntarily adopting business standards that increase transparency of investment strategies. Baker is also working with consultants to reintroduce the industry to lawmakers, emphasizing ties to pension funds and hospital and university endowments, and is compiling district-level data on retirees whose pensions are managed by hedge funds.
Baker acknowledged obstacles, including House ethics rules that bar him from lobbying former colleagues until February, and the difficulty of building relationships over time. Public pension groups have not reliably backed the industry; during the carried interest debate, several pension managers stayed out of the fight or said the change would not affect returns, and the National Conference on Public Employee Retirement Systems reversed its position on the tax.
The association was founded in 1991 and operated quietly for more than a decade. Its membership has roughly doubled over five years, from 750 members to 1,600. According to the Center for Responsive Politics, the association spent $20,000 on lobbying in 1998, the earliest year with available data, and nothing on Capitol Hill advocacy in 2002. Hedge fund donations to federal candidates were under $1 million a decade earlier.
That posture changed after Democrats took control of Congress last year and identified the industry as a potential source of revenue. The industry found itself defending against efforts to tax its offshore accounts and to subject "carried interest" earnings of investment managers to higher taxes. Lobbying costs reached $1.9 million last year, and candidate donations rose from $4.9 million in 2006 to more than $10.6 million this cycle, with four months remaining before Election Day.
Baker joined the association in February after serving on the House Financial Services Committee. He had sponsored a 1999 bill to increase regulation and transparency of the industry, which stalled after hedge fund resistance. Under his leadership, the association is voluntarily adopting business standards that increase transparency of investment strategies. Baker is also working with consultants to reintroduce the industry to lawmakers, emphasizing ties to pension funds and hospital and university endowments, and is compiling district-level data on retirees whose pensions are managed by hedge funds.
Baker acknowledged obstacles, including House ethics rules that bar him from lobbying former colleagues until February, and the difficulty of building relationships over time. Public pension groups have not reliably backed the industry; during the carried interest debate, several pension managers stayed out of the fight or said the change would not affect returns, and the National Conference on Public Employee Retirement Systems reversed its position on the tax.
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