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Net Net: Promoting innovation and managing change

Hedge funds' secret weapon is ex-Obama aide

From Washington to Wall Street
From Washington to Wall Street

Hedge funds and other Wall Street firms have used an unlikely counselor for the past year: a former top economist for President Barack Obama.

Through a contract with New York City-based consultancy 32 Advisors, Austan Goolsbee has held conference calls most Fridays since February 2013 with employees of large hedge fund firms Fortress Investment Group, York Capital Management, Perella Weinberg Partners, SkyBridge Capital and others.

Those firms and others paying to be on the call get to hear from Goolsbeee on the most important economic and policy issues of the day, such as Federal Reserve moves, the U.S. housing market, bitcoin, high-frequency trading, Chinese growth and the debt ceiling. Goolsbee does not give trade ideas for the hedge funds, but rather they get his big-picture perspective on issues more indirectly related to their investments.

Austan Goolsbee
Getty Images

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Senior leaders of the firms, including York founder James Dinan, Perella Weinberg partner and portfolio manager Dan Arbess, and SkyBridge founder Anthony Scaramucci are often on the line, asking questions and listening to Goolsbee's analysis over the 45- to 90-minute weekly sessions. The calls are limited to 18 participants and include major industrial companies, banks and private equity firms.

Arbess called Goolsbee "a brilliant and flexible-minded economist" who helps him understand the intersection of government policy and investing in part because of his "strong informal ties" with the Obama administration.

"Maintaining a regular dialogue with Austan helps us better understand the administration's economic policies, and economic policy decisions debated in other parts of the government, and maybe even exchange views in a helpful way in the other direction, too," Arbess said.

Another fan is Scaramucci.

"He has the ability to apply his practical knowledge of the world and his insider understanding of the personalities that are driving key policy," Scaramucci said. "The world has changed (as) governments have taken a more integrated role in the global economy. Austan's advice and guidance have been priceless."

Scaramucci—a member of Mitt Romney's president campaign finance committee—spoke of Goolsbee's "thoughtful" counsel on subjects like China, Europe, housing and the debt ceiling debates.

York's Dinan declined to comment. A spokesman for Fortress did not respond to a request for comment.

Goolsbee, now a professor of economics at the University of Chicago's Booth School of Business, was chairman of Obama's Council of Economic Advisers from 2010 to 2011 and chief economist and staff director for the President's Economic Recovery Advisory Board from 2009 to 2011. Robert Wolf, 32 Advisors founder, was also a member, along with former Fed Chairman Paul Volcker, General Electric's Jeffrey Immelt and others.

Goolsbee met Wolf—one of Obama's most important financial industry supporters as chairman and CEO of UBS Americas—when Goolsbee was an economic adviser during Obama's first campaign for the White House.

He has strong ties to politics and policy. In an interview, Goolsbee said he was "longtime friends" with Fed Chair Janet Yellen and knows her predecessor Ben Bernanke "very well." He also travels frequently, meeting foreign officials and economists along the way.

Goolsbee is clear that he's not providing the hedge fund clients with any inside or early information. Goolsbee notes his training on the rules of the STOCK Act—a new law to curtail the use of political information in investing—and focus on macroeconomic issues vs. specific legislative developments.

"We're not even close to the line to that sort of thing," he said.

Goolsbee credits Wolf with getting him involved.

"He said, 'Look, you know a lot about economics, the Fed, the international economy, how policy is made and affects things. On Wall Street and at big industrial companies and investors and a bunch of people, there's a lot of demand for that,'" Goolsbee said of Wolf's pitch.

"The intersection of policy, the U.S. and world economy and what's happening in Washington—there's never been a time when that nexus has been more influential on the private sector, on markets and on how companies behave."

Former senior government economists and officials consulting for Wall Street is nothing new.

Firms similar to 32 Advisors include The Lindsey Group, led by former President George W. Bush's economic advisor Larry Lindsey, and Macroeconomic Advisors, co-founded by former Fed governor Larry Meyer. Larry Summers, who also served as an advisor for Obama, also worked for hedge fund firm D.E.Shaw and Citigroup while out of the government.

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Robert Wolf, left, chairman of UBS in the Americas, is among the leading fund-raisers for President Obama’s campaign.
Doug Mills | The New York Times

Wolf is happy to have Goolsbee on his team, even if it's part time.

"When I was the president of UBS Investment Bank—a systemically important global firm—I realized if you are not versed on the intersection of economics, public policy and geopolitical risk then you really don't understand your risk," Wolf said. "I think Austan brings this together in an understandable fashion better than anyone. This is why clients desire his insights."

Wolf declined to comment on what Goolsbee was paid or what it cost for clients to be on the calls.

Wolf left UBS in 2012 after 18 years with the Swiss bank. He promptly founded 32 Advisors, a reference to the number he wore while playing running back on the University of Pennsylvania football team in the early 1980s.

Besides the Goolsbee calls, the firm focuses on providing clients with advice on so-called cross-border issues, including international investment, trade finance and government affairs.

—By Lawrence Delevingne