Skip to main content

The Hedge Fund’s Betting On DemocratsBut Dodd’s Role Skews Numbers

Political contributions are one of the big mysteries in American politics. Why would anyone give to their favored candidate or political party when they could simply free-ride on the donations of others? It’s even more of a mystery than voting, which strikes most political scientists as irrational since the chance of any one vote making a difference is minuscule. Big donors are making an even larger sacrifice than voters, yet the chance of any individual donor’s contribution making a difference is probably just as minuscule.
The most likely answer is that political giving isn’t like voting—whereas voting is anonymous, giving is disclosed. This means political giving can have effects that voting cannot, such as winning favor with politicians receiving the contributions. This, in turn, suggests that giving patterns should differ from voting patterns because the two actions are differently motivated. Voting is a symbolic act whereby voters express a political preference and engage in solidarity with other citizens. You don’t get points for voting for winners or losers (unless it just makes you feel good to have voted for a winner). Giving is a self-serving act—so it makes a lot more sense to give to winners than losers. Think of it this way: voting is like praying or hoping; giving is like betting. Or investing.
And this year hedge funds and private equity firms have been piling into the same trade they did in 2004 and 2006: betting on the Democrats. Hedge fund and private equity donations totaled $6.4 million in 2007 for presidential candidates, with the Democrats getting 59.7 percent of the loot and 40.3 percent going to the Republicans.
These numbers are heavily skewed by the Democratic Senator Christopher Dodd’s role in the presidential race.
Although a little known candidate that few believed had a realistic chance of becoming his party’s nominee, Dodd garnered as much support from the alternative investment category as one-time Republican front-runner Mitt Romney. Dodd is widely believed to have a fund raising advantage as the Senator from Connecticut, where many funds have offices. If we net out contributions to Dodd, the fund raising contest narrows dramatically. Democrats retain an edge over Republicans of just 50.6% to 49.4%.
So hedge funds may have "elected" the Democrats in 2007, as the headline says, but the contest looks a lot more like the closely contested elections of 2000 and 2004 when you take away the Dodd factor.
Hedge Funds 'Elect' Democrats in '08 Race [International Business Times]