For 19 months hedge fund managers were, for the most part, reluctant to support Donald Trump — at least in public — even though he was the nominee for the GOP, the historic party of choice for the wealthiest class.
Several even went out of their way to denigrate him, such as Elliott Management Corp.’s Paul Singer, a longtime Republican supporter, who asserted that if Trump were elected, a “global depression” is “close to a guarantee.”
Kynikos Associates’ James Chanos once said shorting Donald Trump’s companies was one of “the easiest short sales” he’d ever made. And just this week Appaloosa Management’s David Tepper called Trump “the father of lies.”
The feeling seemed mutual. Trump asserted on the campaign trail that “hedge fund guys are getting away with murder” when he called for the end of the carried interest loophole, which benefits private equity managers and, to a lesser extent, hedge funds as well.
The only hedgies to openly support Trump were Renaissance Technologies co-president Robert Mercer, Paulson & Co.’s John Paulson and SkyBridge Capital’s Anthony Scaramucci.
However, while Trump trashed hedgies — and they mostly failed to support him — the reality is that a Trump presidency will be good or even great for hedge fund managers.
Sure, he vows to scrap carried interest’s sweetheart tax rate. However, Trump has a better plan for hedge fund managers: He wants to tax all partnerships at a 15 percent rate. So, with a little help from their accountants, hedge fund managers will be able to reduce their personal tax rate on carried interest from the current 23.8 percent to 15 percent.
Trump and most Republicans also vowed to repeal the Dodd–Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010; that may very well happen now. Dodd-Frank required hedge funds to register and increase their examinations and scrutiny by the Securities and Exchange Commission. This increased transparency of the industry by only a modest amount. But it’s still too much for many hedgies. (Who knows, maybe Stanley Druckenmiller will once again raise money and manage a hedge fund if he is not required to register — the reason he gave for shutting down Duquesne Capital Management several years ago.)
The Dodd-Frank legislation also brought us the Volcker rule, which essentially forced investment banks to dismantle their proprietary trading desks. While investment banks lambasted this policy, hedge funds wound up benefiting from the Volcker rule, as many of them aggressively recruited top traders from the banks. However, many hedge funds also blamed some of the market’s volatility at times on the huge reduction in investors due to the lack of prop trading desks, which resulted in less liquidity to some markets. So, net/net, they would probably welcome the end of the Volcker rule as well.
And then there is the potential intangible benefit of a Trump victory for hedge funds.
As I have written in the past, billionaires and other very successful people share Trump’s hatred for the media and their inability to control what the press writes and broadcasts. Trump has promised to scale back press freedom and make it easier to sue the media if it writes a negative story.
They probably won’t admit this publicly, but this would be a crusade most hedge funds would be happy to join. They are really irked that members of the media — including me — get hold of their quarterly letters. Many hate that we publish performance data obtained from third parties, especially when they are not doing well.
Several (albeit fewer than you might believe) get hostile when I am preparing to publish what they personally earned for our annual and very popular Rich List of top-earning hedge fund managers.
Yes, most hedge fund managers failed to publicly support Trump’s campaign. But I’ll bet they are quietly celebrating in private.
It is just a matter of when, not if, a hedge fund manager threatens to sue me — and other serious journalists — sometime over the next four years.
