Pushy hedge funds pick wrong time to lobby DC

Published Thu, May 19 20163:34 PM EDTUpdated Fri, May 20 201610:13 AM EDT

Breakingviews

Gina Chon, Jeffrey Goldfarb

Hedge funds want to see if a herd mentality works better in Washington than it does on Wall Street. A group of pushy investors have joined forces to create a lobbying group. The timing of their arrival on Capitol Hill, though, isn't much better than some of their recent stock picks. Aggressive shareholders have until recently preferred to work behind the scenes. For example, when Wachtell, Lipton, Rosen & Katz, the go-to law firm for corporate directors under siege, floated a proposal in 2011 that would have forced investors to disclose big stakes in companies more quickly, they held quiet meetings to sway opinion at the Securities and Exchange Commission. The plan stalled. Since then, however, the power of such investors has increased. As their funds have grown, so has the backlash. Bill Ackman, the vocal billionaire who runs Pershing Square, was called before Congress to testify about the drug price hikes at Valeant Pharmaceuticals, one of his biggest and most troubled investments. In March, two senators revived Wachtell's idea with minor changes. More from Breakingviews : BASF best leaving Monsanto seeds for the birds The creation of the Council for Investor Rights and Corporate Accountability, as the new hedge-fund advocacy organization is known, evokes a similar effort by their private-equity counterparts. A dozen of them coalesced inside the Beltway in late 2006 just as their ever-larger leveraged buyouts were attracting greater scrutiny. Legislation was introduced around that time that would have forced publicly traded partnerships managing other people's money to pay corporate-level taxes, in what became known as the "Blackstone bill," just as Steve Schwarzman's firm was advancing toward an initial public offering. As the activists raise their voices in union, the Private Equity Growth Capital Council is reacting differently to the populist mood. Earlier this month, it rebranded as the American Investment Council and expanded its mission to advance "job creation, retirement security, innovation, and economic growth." The hedge funds – including Pershing Square, Carl Icahn's eponymous firm, Paul Singer's Elliott Management, Dan Loeb's Third Point and Barry Rosenstein's Jana Partners – have a more limited agenda for now. They're more concerned about being labeled "hit and run" investors, as Democratic presidential contender Hillary Clinton called them. The problem is that while elected lawmakers on Capitol Hill could use an education, they're as receptive to calls related to high finance these days as boards are to approaches from activists. For more independent commentary and analysisfrom Reuters Breakingviews, visit breakingviews.com

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