Political contributions by corporations are often balanced with more or less equal amounts donated to competing parties. Corporations adopt this approach so as to project a neutral image towards the leading parties. But surprisingly hedge funds have been one-sided in recent years in their support to the political parties according to data published by the non-partisan, not for profit research group Center for Responsive Politics which tracks the flow of money in politics and its effect on elections and public policy. The data shows that hedge funds have flipped their loyalty towards Republicans in recent years, prompted by the party’s opposition to bills such as the Dodd Frank Act which attempts to limit the flexibility of hedge funds and forces funds to disclose previously unreported information.

Hedge Funds Switch Support

According to the research firm Center for Responsive Politics, hedge funds gave 67 percent of donations to Democrats in 2008 but have since switched their loyalty to Republicans. In the 2010 mid-term election, Republicans received 53 percent of hedge fund donations and the trend continued in 2012 during the presidential election when Democrats received just 24 percent of hedge fund donations. So far this year with a mid-term election round the corner, hedge funds have continued to favor the Republican Party with 67 percent of the industry’s contribution going to the Republicans.

Among the hedge fund managers switching loyalty are Dan Loeb of Third Point Capital and Steve Cohen of the now defunct SAC Capital. Both were once strong supporters of the Democratic Party but have completely shifted their allegiance. Other well known managers who have jumped ship include John Paulson of Paulson & Co and Ken Griffin of Citadel. Both of them gave equally to the two leading parties in 2008 but have since become big donors to the GOP.

Dodd Frank Act Biggest Concern

The shift in loyalty is almost entirely attributed to the hedge fund industry’s concern over the Dodd-Frank Wall Street Reform and Consumer Protection Act, especially the regulation of over-the-counter (OTC) derivatives. The law supported by Democrats brings a measure of government oversight to derivative trades. Republicans have vowed to repeal or blunt the law.

The industry’s resentment toward Democrats is also a result of President Obama’s populist attacks on Wall Street, including singling out hedge funds for their role in the 2008 financial crisis. The hedge fund managers are concerned that such populist rhetorical salvos unfairly subjected them to ridicule for financial success.

Relevance to Job Market

The noticeable shift in the loyalty shows the industry’s concern on government actions that restrain the risk-taking ability of hedge funds as well as curtail a fund’s flexibility. Hedge funds are known for taking an unconventional approach to identifying investment opportunities. Government intervention in the form of oversight will hinder a fund’s ability to execute certain strategies that may be viewed as too risky. Restraining a fund from freely executing certain trading strategies will likely be a dampener to its hiring plans. As a result, strengthening or introduction of laws which impose new reporting requirements on hedge funds will likely have long term negative implications for the industry’s job market.

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Ziff Brothers Investments, the multi-billion dollar family office hedge fund that invests the family fortunes of the three billionaire brothers is shutting down according to Wall Street Journal. The move to close the last of their two hedge funds is a result of a growing difficulty in coming to a consensus in decision making among the brothers who have developed stronger views on their interests over the years. The recent lackluster performance of the fund which adopts a market neutral strategy by betting on and against stocks, and thereby seeking to have no net exposure to the stock market, also contributed to the fund closure.

Ziff Brothers Story

The brothers Dirk aged 50, Robert, 47, and Daniel, 42 are grandsons of Ziff Davis Media founder William Ziff, Sr., who co-founded the publications business named Ziff Davis Inc way back in 1927. The brothers’ father, William Ziff Jr., took over the business in the 1950s and after several successful years of operation, sold it for $1.4 billion in 1992 as his sons were not keen on continuing the publications business.

The brothers set up the family office hedge fund in 1992, and in the same year provided seed money to hedge fund manager Daniel Och whose firm Och-Ziff Capital Management bears the Ziff family name. In return, the brothers received 10 percent stake in Och-Ziff Capital, which eventually went public in 2007. The Ziff brothers have been reducing their stake in Och-Ziff Capital over time and now own less than 10 percent.

The family office also has a history of backing several other well-known hedge fund managers including activist investor William Ackman, James Chanos, and Richard Perry.

One for All, All for One Investment Style

For over two decades, the three brothers, each of whom have a net worth of about $5 billion, followed a one-for-all, all-for-one investing style. This consensus-driven approach to investing has become a barrier to investment decisions in the recent past as the brothers now have stronger views on their interests compared to their early years. The closure was also prompted in part by the weak performance of its funds which have been significantly lagging the broader S&P 500 index in recent years. Last year, S&P 500 gained 32.4% while market neutral hedge funds had average returns of only 6 percent.

As a result, the Ziffs closed their New York hedge fund last fall triggered by the decision of its longtime portfolio manager Ian McKinnon to retire. Now within a short span of a few months the hedge fund is winding down its London operations also.

Future Plans

Going forward, in a shift from their consensus-driven approach, the Ziff brothers plan to make investments independently of one another. There may still be a few joint investments but the shift is towards investments independent of each other.

In recent years, the firm’s hedge funds together managed between $5 billion and $10 billion and employed around 300 to 400 people. The brothers plan to invest in a new investment firm launched by the head of their London hedge fund operations. In addition, the brothers are looking to seed new hedge funds being started by other former Ziff Fund employees.

Relevance to Job Market

The news of the Ziff brothers closing their operation doesn’t impact the job market beyond the few hundred jobs that would be lost as a result of the shutdown. But beyond that it shows that certain hedge funds which have been in operation for a while are seeing a need to alter certain key elements of their investment style to succeed in today’s market.

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