The Big Split: Why the hedge fund world loved Obama in 2008- and viscerally despises him today.
March 20, 2012
In May 2007, when Barack Obama was but an upstart challenger of Hillary Clinton, he attended a gathering of several dozen hedge fund managers hosted by Goldman Sachs at the Museum of Modern Art in New York. It was not a fund-raiser, just a chance for Obama to introduce himself to the investment wizards who had helped turn the hedge fund sector into the most lucrative and alluring corner of the financial universe. And the first question for Obama was as blunt as one would expect from this crowd. “If you’re elected president,” asked one guest, “what will you do to the taxes on the people in this room?” “I’ll raise them,” Obama fired back. “Which I admired,” recalls one of the attendees, Leon Cooperman, head of Omega Advisors. “And half the guys in that room voted for him.”
Obama surely knew that brusque candor would serve him well. He had gone to college and law school with these hyper-successful types and had raised money from some of them for his 2004 Senate run. He proceeded to rake in large sums from them for his presidential effort—$1.5 million, more than double John McCain’s take. This was in part because savvy investors like to pick winners, and, as the race developed, Obama’s campaign looked like a winner. But many fund managers also felt a personal connection with Obama. Just as they had carved out a successful niche within finance by thinking big and against the grain, Obama had risen by promising to transcend conventional bounds of race and politics. “They loved the guy,” says a Washington lobbyist who has represented the hedge fund industry. “He was an exciting, bright guy—like they are. He went to the best schools because he was the best student, not because daddy got him in there. Many of them are the first generation to have wealth, and they view it from a meritocratic standpoint—they made a phenomenal amount of wealth and they feel they earned it. They felt that he’s earned his success as well. It resonated with them.”
Four years later, that bond is broken. The hedge fund community has overwhelmingly shifted its backing to the Republicans: Mitt Romney has so far outraised Obama by a four-to-one ratio among hedge fund employees, pulling in more than $500,000—not to mention the seven-figure checks his super PAC has received from several top fund managers.
It makes sense that Obama would lose support from traditional Wall Street. The banks feel aggrieved at having been singled out for blame for the financial collapse—above all in the Dodd-Frank law, which is already crimping their profits. But Obama’s deep unpopularity in the hedge fund world is harder to figure. For one thing, hedge funds may actually benefit from Dodd-Frank. They will have to register more information with regulators—a departure for an industry defined since its beginnings in the late 1940s by its exemption from oversight—but they could also get new business as a result of restrictions on proprietary trading by banks. For another, while the hedge fund sector has shrunk since the crash, the top 40 managers still made $13.2 billion combined last year. And yet, the antipathy that many fund managers are now exhibiting toward Obama is more intense even than what he is facing from bankers. “They hate him now,” says one former Obama administration official.
Trying to trace this shift of support leads one deep into the collective mindset of an industry that defined pre-crash America like no other—into a complex web of motivations where political philosophy, self-interest, and ego intersect. The lobbyist, for one, chalks it up to a romance gone bad. “A lot of people’s love of Obama was not completely balanced, and their dislike of him now is not completely balanced,” he says. “Maybe that’s what happens when you fall in love.” Bill Daley, who served as Obama’s chief of staff last year, attributed the hedge funders’ change of heart to a failed “leap of faith.” “The 2008 campaign was something that a lot of people who had traditionally not been supportive of a Democratic candidate came to,” he told me. “They were tired of Bush and nobody was really enthusiastic about McCain, … so they attached to the president. What he said in the campaign wasn’t that dramatically different than what he ended up doing, but they either didn’t listen, or they didn’t believe him.”
Omega’s Cooperman (who wound up backing McCain in 2008) put the shift in more caustic terms. Many of his fellow masters of the universe had been snookered by Obama, he argues. Obama’s election “was wonderful for the minority and black population, but in my opinion he’s been the worst president in history.” He added that a mantra has been making the rounds among fund managers lately: “If you voted for Obama in 2008 to prove you’re not a racist, don’t vote for Obama in 2012 to prove you’re not an idiot.” The more people in the hedge fund world whom I talked to, the more visceral critiques that I heard, the more I began to suspect that what had happened was not purely rational. The revolt of the hedge funders, it turns out, is a phenomenon that goes deeper than finance or politics.
THE FIRST HEDGE FUND manager to break very publicly with Obama was Clifford Asness, the holder of a doctorate in economics from the University of Chicago who, to the dismay of his professors, quit a promising career in academia and went on to found AQR Capital Management, a fund that manages $16 billion. Asness leans libertarian, but gave generously to the Democrats in 2006 and 2008, including a maximum personal donation of $2,300 to Obama. But, just months into Obama’s presidency, Asness flipped—hard. After Obama chastised hedge funds for refusing the administration’s offer to Chrysler bondholders as part of the auto industry bailout, Asness fired off a testosterone-fueled public letter in early May 2009 attacking Obama’s “backwards and libelous” remarks. “This is America,” he wrote. “We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.”
Last July, a Rutgers business professor spotted Asness dining with Republican Representative Paul Ryan at Bistro Bis on Capitol Hill. The professor, Susan Feinberg, couldn’t resist going over to their table and asking Ryan how he could reconcile ordering two $350 bottles of Pinot Noir at a time when he was proposing to slash safety-net spending. Ryan mumbled a response—“Is that how much it was?”—but Asness tore into Feinberg, capping his rant with a “fuck her.” “He seemed genuinely pissed off,” Feinberg told me. “He started keying up the rhetoric—‘You go and tell your liberal friends … .’ Doing that thing where you point your finger really hard.” Asness remains aligned with the left on social issues—last year, he gave heavily to the gay marriage cause in New York. But, otherwise, he has shifted his political giving entirely to the right, including a $30,800 check to the Republican National Committee in October.
Given Asness’s libertarian leanings, perhaps it was inevitable that Obama would eventually arouse his ire. But the president has also fallen out of favor with hedge funders with whom he has a more personal connection. Take Ken Griffin, who runs the Chicago-based Citadel, a behemoth with hundreds of employees and more than $12 billion under management. Griffin was the ultimate wunderkind. He was still a teenager when he started a stock-trading partnership with a computer salesman in Boca Raton—a man whom his mother had asked to tutor Griffin on his new PC—and he set up a satellite dish atop his Harvard dorm to keep trading there. “He’s way smarter than [Mark] Zuckerberg,” the former salesman, Rush Simonson, told me. Over the years, Griffin had established himself as a major figure on the Chicago scene—among other things, he and his wife donated $19 million for a new wing at the Art Institute of Chicago (and Griffin plunked down $80 million for a Jasper Johns of his own). He played both sides politically, but, when his state’s new senator decided to run for president, Griffin’s hometown pride kicked in. He invited Obama to speak to Citadel employees and raised tens of thousands of dollars for him. (As you might expect, he also hedged his bets by raising some money for McCain.)…