Private Equity and Hedge Fund Industries Pour Over $347 Million Into Midterms

Federal committees reported receiving nearly $347.7 million during the 2022 midterm election cycle from private equity and hedge fund employees and PACs, an OpenSecrets analysis of Federal Election Commission disclosures available on Aug. 15 found.

Sen. Kyrsten Sinema (D-Ariz.) made headlines in August for her stalwart opposition to a provision in the Inflation Reduction Actsigned into law by President Joe Biden on Aug. 16 — that would have closed the carried interest tax loophole. The existing loophole allows private equity executives and some hedge fund managers to claim large portions of their income as investment gains at a substantially lower tax rate.

Lobbyists for these firms barraged Sinema’s office with calls the day before the Senate voted to pass the Inflation Reduction Act, reported CNBC. Senate Majority Leader Chuck Schumer (D-N.Y.) said his party had “no choice” but to remove that piece from the legislation.

Schumer, Sinema and Sen. Joe Manchin (D-W.Va.) — three key architects of the Inflation Reduction Act — are among the top recipients of contributions from the private equity and investments industry in the 2022 election cycle, according to data tracked by OpenSecrets.

Private equity and investment firms have steered $351,000 to Sinema’s campaign and leadership PAC, Getting Stuff Done PAC, so far this election cycle — more than half of the $766,000 Sinema’s political operation has received from the industry since 2012.

Blackstone Group has given the most money to Sinema’s political operation since 2012, with individuals contributing $60,900 to Sinema’s campaign and $20,500 to her leadership PAC. Employees at Carlyle Group and the firm’s PAC contributed $40,100 to her campaign and $8,400 to Getting Stuff Done PAC, and individuals at Welsh, Carson et al gave $47,100 and $5,000 respectively.

In the last five years, Sinema’s campaign received nearly $2.3 million in PAC giving and campaign contributions from the overall securities and investment industry, according to data tracked by OpenSecrets. Her leadership PAC brought in $256,200 from the industry during that same period — more money than it received from any other sector.

The senator had been “clear and consistent for over a year that she will only support tax reforms and revenue options that support Arizona’s economic growth and competitiveness,” a spokesperson told OpenSecrets.

Manchin faced significant criticism for his reluctance to pass the Inflation Reduction Act — and its Build Back Better predecessor — in an evenly divided Senate. Although Manchin’s political operation reported receiving over $369,000 from the private equity and investments industry during the 2022 election cycle, the West Virginia senator has been a vocal opponent of the carried interest loophole, helping to introduce the Carried Interest Fairness Act in 2021.

Referred to the Senate Finance Committee, the bill has not advanced since May 2021.

Individuals and PACs affiliated with the securities and investment industry also contributed $1.7 million to Manchin’s campaign during the 2022 election cycle, and his leadership PAC received over $190,000 from the industry.

Schumer’s political operation has received by far the most money from the private equity and investments industry during the 2022 midterms. The Senate majority leader’s campaign received over $1.2 million in contributions from industry individuals and PACs in the 2022 cycle alone, and his leadership PAC received $251,000.

A spokesperson for the majority leader told the Financial Times that Schumer “worked until the very end to try to keep the provision in the legislation and will continue to seek opportunities to eliminate it.” Schumer’s office did not return OpenSecrets’ request for comment.

The Inflation Reduction Act is not the first time the private equity firms and hedge funds flexed political influence to protect the carried interest tax loophole. Individuals and PACs at private equity firms including Blackstone Group, KKR & Co. and Carlyle Group as well as hedge funds including Soros Fund Management and Citadel have poured hundreds of millions of dollars into the political process in recent decades.

The private equity industry steered $223.5 million to federal candidates since 1990, according to data compiled and coded by OpenSecrets, including $23.5 million in contributions to 2022 midterm campaigns reported to the FEC.

Private equity firms also spent $245.5 million on lobbying from 1998 through the second quarter of 2022, according to OpenSecrets data. The industry also boasts an experienced bench of lobbyists — over three-quarters of lobbyists representing private equity firms in 2022 swung through the revolving door between the public and private sectors.

Hedge funds contributed over $107.2 million to federal candidates during the 2022 midterm election cycle, including nearly $10.4 million this cycle alone. The hedge fund industry spent over $119.7 million on federal lobbying during the same period. Just under two-thirds of the industry’s lobbyists in 2022 were former government employees.

Both private equity firms and hedge funds ramped up lobbying in 2007 as the 2008 financial crisis loomed. Hedge funds in particular were heavily invested in mortgage-related securities at the time of the crash, according to the final report on the causes of the crisis prepared by the Financial Crisis Inquiry Commission.

Private Equity and Hedge Fund Managers Pour Money Into 2022 Cycle

Money from individuals and PACs of private equity firms and hedge funds is flowing to politicians this election cycle, including hundreds of millions of dollars to outside spending groups.

Individuals at private equity firms have contributed at least $49.8 million to federal candidates and committees during the 2022 midterms, which reported receiving an additional $770,000 from private equity PACs as of Aug. 15. Private equity and hedge fund donors gave $52 million and $214 million respectively to outside groups. Hedge fund employees contributed just under $30.6 million to federal candidates.

One of the hedge fund industry’s top donors this election cycle is Ken Griffin, the billionaire CEO of the hedge fund Citadel. Griffin is the third largest individual donor and the second largest conservative donor for federal committees in the 2022 midterms. He has also given over $56 million to state-level candidates this election cycle — including $50 million to Illinois gubernatorial candidate Richard Irvin, who lost the GOP primary to state Sen. Darren Bailey (R), and $5 million to the Friends of Ron DeSantis PAC.

The Citadel CEO poured $8.8 million into a pro-David McCormick super PAC — Honor Pennsylvania that spent over $19.3 million in the Keystone State’s contentious Senate GOP primary. Hedge fund affiliates and PACs poured nearly $229,000 into the campaign for McCormick, who lost the Pennsylvania Senate GOP primary to celebrity heart surgeon Mehmet Oz.

Several other hedge fund executives poured millions into Honor Pennsylvania, including D1 Capital Partners founder Daniel Sundheim and Paul Singer, founder and president of Elliott Management Corp.

Carried interest is “not really an issue” for hedge funds like Citadel, which turn over portfolios on a short-term basis compared to private equity firms, a company spokesperson told OpenSecrets.

A recent ProPublica article found hedge fund managers including Griffin are often taxed at higher rates than private equity executives if they earn income through short-term trades. Carried interest generally benefits private equity executives more than other industry stakeholders, as their management fees are taxed at a lower rate than the wages of their salaried employees.

But, when asked about his stance on the carried interest tax loophole at the Economic Club of Chicago in 2013, Griffin said the U.S. tax code “favors the creation of wealth” and therefore “the nature of the income that is created should flow through to those that create it.” Although Griffin added he didn’t have “a lot of skin in the game,” he was interested as “a matter of principle.”

Griffin also spent $54 million opposing a 2020 ballot measure that would have raised taxes for ultra-wealthy Illinoisians like himself, ProPublica found, noting Griffin was the second largest taxpayer in the U.S. from 2013 to 2018. The measure failed.

George Soros, the billionaire founder of Soros Fund Management and the philanthropic Open Society Foundations, is the top individual donor to outside groups this election cycle. Soros poured $125 million into his super PAC, Democracy PAC II, earlier this year. The Fund for Policy Reform, a 501(c)(4) nonprofit backed by Soros, contributed another $25 million.

Other private equity and hedge fund executives top the individual donor list compiled by OpenSecrets include Blackstone Group chairman and CEO Stephen Schwarzman, Susquehanna International Group co-founder Jeffrey Yass, and Lone Pine Capital founder Stephen Mandel. All three men are multibillionaires, according to Forbes.

Demystifying “Private Equity”

The term “private equity” is a tasteful rebranding of “leveraged takeovers,” Carter Dougherty, communications director with Americans for Financial Reforms, told OpenSecrets. Americans for Financial Reform is a left-leaning nonprofit organization formed in the wake of the 2008 crisis to study and advocate for policies that advance a more just, equitable financial system. Using data compiled by OpenSecrets on a curated list of private equity firms, hedge funds and their subsidiaries, the organization developed a 2021 report on industry spending.

Private equity firms pull together big pots of money from pension funds, endowments and wealthy individuals, Dougherty explained — generally any place that wants to get a return on their investments. These firms can then use that money to take over a company, restructure it and sell it at a profitable margin.

There always seems to be a key politician siding with the industry, Josh Kosman, private equity expert and author of Buyout of America, told OpenSecrets. He added that these politicians, like Sinema, have swung votes that have basically been saving the industry for decades.

The private equity industry has had a huge influence over both Republican and Democratic officeholders, especially in the last 15 to 20 years, according to Kosman. Affiliates of these firms have given almost evenly to Democrats and Republicans in recent years, OpenSecrets’ research shows, with slightly higher contributions to Democrats.

Dougherty and Kosman also pointed out an amendment exempting private-equity-owned companies with under $1 billion in revenue from paying the 15% minimum corporate tax. While firms could own hundreds of companies with combined revenue of over $1 billion, Kosman told OpenSecrets, the amendment assured each will be seen as an individual company for tax purposes.

The private equity sector currently controls more than $6 trillion in assets, according to a recent ProPublica article.