By Michelle Celarier
The size of the hedge fund industry may have shrunk in the past year, but one thing has not: its political voice. The Managed Funds Association, once viewed as a hidebound organization whose main goal seemed to be keeping Washington in the dark about hedge funds, has turned into an industry lobby with more money, more members and—it hopes—more clout.
One sign is the September 30 election of Darcy Bradbury, senior vice president and director of external affairs for D.E. Shaw and former Treasury official in the first Clinton administration, as its chairman. A longtime Democrat, Bradbury, who also worked in New York City Mayor David Dinkins’ administration, reflects the industry’s political shift in recent years. Some 65% of hedge fund executives’ political contributions went to Democrats in the last election cycle, and it is up to 71% for the 2010 races.
Proactive, not reactive, is how the MFA likes to cast its current approach to politics, pointing to the fact that its new board is full of chief operating officers who are thinking about business strategy, not lawyers whose primary job is to protect their firms’ backsides, as in the past.
With financial regulation on the agenda in Washington, the MFA needs to get ahead of the game, in part because it has been so far behind. When the Securities and Exchange Commission imposed mandatory registration of hedge funds in 2006, the MFA vociferously attacked it. That caused a rift in the industry, and leading hedge fund executives opposed to that view—Taconic Capital’s co-founder Ken Brody and Kynikos Associates’ James Chanos—started their own lobbying groups.
It wasn’t until last year’s financial crisis made registration inevitable that the MFA, under the leadership of outgoing Chairman Eric Vincent, finally was able to get consensus among its notoriously independent members to support registration. “The financial crisis has caused everyone to get religion,” says one hedge fund executive involved in the MFA.
Vincent might be viewed as a transitional figure. He is also a Democrat and a big supporter of Barack Obama (they went to Harvard Law School together), but his own firm, Ospraie Management, isn’t registered with the SEC. It plans to do so when required.
“Eric has done some of the hardest work already,” says Bradbury, referring to Vincent’s role in building the organization for the past two years. He also recruited her. (D.E. Shaw execs are heavy financial backers of Democrats as well.)
The MFA’s swelling coffers (dues are up 250%) allowed the group in 2008 to hire Richard Baker, the former Republican congressman from Louisiana, as its president and voice to Congress. To counter any perception of Republican bias, the MFA added Democrats well-regarded on the Hill, such as Roger Hollingsworth, the former senior policy adviser to Christopher Dodd (D-Conn.) on the Senate Committee on Banking, Housing and Urban Affairs.
Registration is no longer the driving concern, says Bradbury. “What’s going to happen with the regulation of the OTC derivatives market? How are the SEC and the CFTC going to tackle the really pressing issues facing them with innovations in the equity markets and the trading in energy markets? There is an array of public policy issues that have a bottom-line impact on how hedge funds conduct their core business.” The MFA is also working on the international front. As Baker puts it, “There’s an increasingly contentious environment on the Continent.”
Last year, the MFA persuaded the SEC that public disclosure of short sales was a bad idea—during the height of the hysteria over short selling. The agency has since backed down on even individual firm disclosure.
The MFA’s growth may help explain its increasing influence. The MFA now counts 1,100 individual firms in its membership, including 450 billion-dollar hedge funds—a 44% overall increase in the past two years. A founder’s council created in late 2007, with membership dues of $225,000 per year (the MFA’s highest), now has 20 members—and a waiting list. (The MFA spent $2.5 million on lobbying efforts in 2008 and has already spent $1.7 million this year.)
Earlier this year, Obama’s public comments chastising hedge funds as speculators dismayed many of his backers at hedge funds. “At times the rhetoric was concerning, but actions speak louder than words,” says Vincent.
Adds Bradbury: “The administration and the Federal Reserve have pulled us back from the brink. We depend on sound financial markets to do our business, and we’re in much better shape than we were a year ago.”
