Hedge fund LPs worry that politics is distracting managers

Hedge fund managers and private equity executives have become the primary sources of donations for both parties. George Soros, Lone Pine founder Stephen Mandel and the late Jim Simons have long been mega-donors to Democrats and liberal organizations, while Griffin, Elliott’s Paul Singer and Blackstone co-founder Steve Schwarzman have funded Republican campaigns and causes.

Occasionally, the political involvement of the alternative investment industry can be patently self-serving. Investors and crypto firms have been huge donors on both sides of the aisle to gain a foothold in Washington for their interests, for example.

But for the industry’s biggest names who have gotten involved in politics, personal interests and values ​​drive their giving. For example, Singer, whose son Andrew married her husband in 2009, has donated to causes supporting the legalization of same-sex marriage in various states, despite supporting GOP politicians who opposed it.

It’s a natural progression for an industry that’s churned out dozens of billionaires, but in conversations with four investors, there’s concern that the hobbies may take them away from their day-to-day roles. Investors spoke broadly, without naming specific companies or leaders.

The policy or “just being active on Twitter” is “a sign that they’re not spending 100 percent of their time and effort on the investment side,” said Rudy Koitchev, managing director of alternative investments at SEI, which owns a portfolio of about 4 billion dollars. of hedge funds and other liquids.

“It’s a distraction,” he said.

“It’s a people business”

Mercer’s global chief investment strategist, Rich Nuzum, advises institutional investors with more than $16 trillion to invest. For him, “it’s a people business, so the soft stuff is the main focus in every conversation.”

“Frankly, we don’t like it when we see senior investment professionals developing powerful interests away from their investment process — publishing books, you know, getting into politics,” he said.

Brian Payne, chief strategist covering private and alternative markets at BCA Research, said that similar to buying a sports team, the question for LPs is about the time commitment.

“How much time do they spend away from the office doing this?” Payne asked.

While Chris Walvoord — a former executive at Aon who used to lead a team that invests in hedge funds — doesn’t blame anyone for donating money to something they believe in, then the founders are becoming more public about their politics which concerns him .

“You’re probably alienating some potential investors,” he said, and that puts all investors at risk if it affects the health of a manager’s business.

“If you’re really into sailing, that’s a distraction. Politics comes with a business risk.”

Nuzum said that in some firms, succession plans and promoting the next generation help alleviate these concerns.

When the next star investor is identified in LP and given more responsibility, “then it’s better for the senior people to be mentored and not do so much, they develop other interests,” he said.

“So I don’t want to say it’s always bad, but it’s a people business and you want the people who are in the business to focus on it,” he said.

Griffin stands out

The reality for most of the industry’s biggest donors is that they are no longer at the peak of their careers.

Many of them either returned outside the capital or retired from their main roles. Soros and big Republican donor David Tepper, the owner of the Carolina Panthers who runs Appaloosa Management, mostly manage their own money these days. Mandel retired from Lone Pine, turning the firm over to some of his top lieutenants.

In this context, Griffin stands out even more. The founder of both the $63 billion hedge fund Citadel and the massive market-maker Citadel Securities, Griffin, 55, has never been more powerful in his industries or in GOP circles.

While LPs prefer their managers to stay out of the headlines, Griffin hasn’t been shy in recent years to pick fights. Earlier this year, Griffin waded into the debate surrounding college campuses and pro-Palestinian protesters by saying he was withholding donations to his alma mater, Harvard, until the administration aligned with his thinking.

His firms left Chicago for Miami after holding talks with state and local leaders, and Griffin even compared the Midwestern city’s violence to Afghanistan (many of his employees still work and live in Chicago, and the Chicago Museum of Science and Industry of the city was renamed after Griffin in May after donating nearly $60 million).

“Ken’s political participation is driven by his commitment to America. He supports those who share his commitment to individual rights and freedoms, access to high-quality education, upward mobility, safe communities and a strong national defense,” said Zia Ahmed, a Griffin spokesman.

While the billionaire has drawn more attention in recent elections for his level of giving, Griffin has been active in politics for a quarter century — proving he can be both a big donor and a top money manager. Fund of funds LCH Investments says the firm is the most profitable hedge fund of all time and almost every institutional investor in the world would jump at the chance to allocate.

And the boards of these institutional investors can sometimes overestimate their power, said Payne, an investment officer at the Illinois Teachers’ Retirement System from 2017 to 2022.

While they control the portfolio of hundreds of billions in assets, top hedge funds and private equity managers have the leverage — and “they know they can go raise money elsewhere.”

Payne said this insulation protects the biggest names in the industry – as long as the performance continues.

But that doesn’t mean LPs like their managers talking.

“It’s a very uncomfortable experience to see them in the media constantly,” Koitchev said.