The big Wall Street Journal story on hedge funds does a good job of describing the shift of hedge fund political donations from Democrats to Republicans.
But it doesn’t give a very satisfactory answer about why this happened. There is some hand-waving about the usual suspects—taxes, the economy, financial regulation—but nothing very persuasive.
I’ve been asking some of my friends at hedge funds about this political shift—and few of them can really explain it. Guys who make a living interpreting markets profess to not understanding why the market for political donations from hedge funds has flipped from favoring Democrats 3-to-1 to a simple majority in favor of Republicans.
But I’ve come up with a theory.
My idea starts with the fact that hedge fund people are rebellious.
Many of them have left big Wall Street institutions to strike out on their own—or join a small team. Day in and day out, many believe they are battling against firms like Goldman Sachs or JP Morgan Chase. The activists view themselves as crusaders against a corrupt corporate culture.
This translates into hedge fund politics thus: hedge funders will donate to which ever party seems to be the rebel party at the time.
For the previous five election cycles, the Democrats were clearly the rebel party. They were struggling to recapture Congress—and then the White House. But this success made them the party of authority—which drives off the anti-authoritarian hedge fund folks.
The last time a majority of hedge fund money went to the Republicans was 1996—when the Republican upstarts were fighting to retain a think Capitol Hill majority after years of Democratic Congressional dominance.
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