Tuesday, March 19, 2013

Why I’m Going to Grand Cayman

Why I’m Going to Grand Cayman

After reading the title of this post, you’re either thinking that I’m headed on vacation or attending the board meeting for an offshore fund.  Actually I am avoiding having to make political contributions.  Having resigned my consulting relationships in the latter part of 2011, I was preparing to exit the Management Oversight Committee, a rare legal structure that oversees a couple of real estate funds.  The two funds are winding up, and there’s not much activity to oversee.  I figured I didn’t need a 24-hour trip to Georgetown, or the hassle of traversing the Miami Airport.  However, I changed my mind on December 31, 2011 after receiving a phone call.
Hedge Fund Review (2005)

The caller, a politician, began by congratulating me on my retirement, and then quickly changed the subject.  The new SEC limitation on political contributions by money managers was making it more difficult to raise campaign funds.  The limitation is $350 for a candidate if the manager is eligible to vote for the candidate and $150 for any other candidate.   Instead of being able to collect a couple thousand dollars from a hedge fund or private equity manager, politicians were now scraping together far less.  A cocktail party in Manhattan used to net $30,000 or $40,000 before the SEC instituted the rule.  Now that same event would only raise about $2,000.

In reality the SEC limitation is inane.  It actually helps money managers more than anyone else.  Rather than being harassed by politicians, money managers can write their small check for $350 or $150 and be done with the incessant requests for contributions.  At the same time, money managers haven’t lost any influence.  As I’ve pointed out on other occasions, campaign contributions are not the way that money managers exert political influence.

Since I was no longer going to be in the money management business, my checkbook had become very attractive to politicians, and this politician had figured it out 24-hours before I was officially out of the business.  Being a typical money manager, I didn’t want to give a definitive “no”, so I hid behind the fact that technically I was still working for my clients, and therefore could not make a sizable contribution before the reporting deadline on December 31st.  After my response, the call quickly ended.  The politician wished me a Happy New Year, and said we could revisit the subject early next year.

Moments after hanging up the phone, I realized that I wanted to hold onto my membership on the Management Oversight Committee.  While the structure of the real estate fund sheltered some of the investors from taxation, the fund sheltered me from campaign contributions and those painful solicitations.  Indeed, when the same politician called back in early February 2012, I had my excuse, and I used it.

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