Saturday, November 29, 2008

Summers and Hedge Funds

These two articles give some of the background of Summers insofar as he was associated with Hedge Funds. His work and pay are both secrets it seems. The Hedge Funds as a group were active in lobbying against their regulation and regulation of derivatives. The latter are often part of the toxic wastes floating about in the paper sewage generated by bright financial entrepreneurs as a source of profit.

Summers and Hedge Funds
By Ken Silverstein
After being named as Barack Obama’s top White House economics adviser, Lawrence Summers resigned from his post as a managing director of D.E. Shaw & Co, a leading hedge fund. “Neither the Obama transition team nor D.E. Shaw would say exactly what Summers had done in his two years of work for the $36 billion hedge fund, or how much he has been paid, Politico reports. A 2007 article in Institutional Investor’s Alpha says only that Summers was hired to work “with the senior management team to find new ways to generate profit and manage risk.”D.E. Shaw is a member of the Managed Funds Association, the leading lobbying organization for the hedge fund industry. The MFA was founded last year and since then has spent about $3.5 million lobbying the federal government, according to federal disclosure records. Its priorities include blocking regulation of hedge funds and financial instruments like derivatives. The MFA also opposes higher taxes on hedge funds and their managers. Incidentally, David E. Shaw, the founder of Summers’ recent employer, earned about $210 million last year.Top lobbyists at the MFA include former Louisiana Congressman Richard Baker, previously of the House Financial Services Committee, and Roger Hollingsworth, who was hired in August. Hollingsworth was hired from the Senate Banking Committee, where he served as deputy staff director and senior policy advisor to Committee Chairman Christopher J. Dodd,” says his bio. (Hollingsworth is a one-man revolving door. Before going to work for Dodd, he lobbied for the Securities Industry Association, and before that he worked for Democratic senators Jon Corzine and Charles Schumer.)The MFA spent a few million more on lobbyists from eight outside firms it retained. The roll call of former officials working for the association include, at one firm alone, Senator Don Nickles; Rachel Jones Hensler, tax policy director for the Budget Committee under Nickles; Hazen Marshall, staff director for the Senate Budget Committee; and Brian Wild, a former top aide to Vice President Dick Cheney. The list goes on and on.The MFA and people affiliated with it donate lavishly to politicians as well, overwhelmingly to Democrats. Trey Beck, the managing director of D.E. Shaw who helped hire Summers and who is also a board member of the MFA, gave more than $40,000 to the Democratic Senatorial Campaign Committee in recent years (not to mention $2,200 to in 2004).“As citizens, we’re delighted that President-elect Barack Obama has selected Larry Summers to head the National Economic Council,” D.E. Shaw said in a newly released statement.The MFA is surely delighted as well.<>

And here is another post about Summers and Hedge Funds:

<>Summers has ties to prominent hedge fund
By: Eamon JaversNovember 28, 2008 12:08 PM EST
On the same day Lawrence Summers was announced as President-elect Barack Obama’s top White House economics adviser, the veteran economist said he would resign as the part-time managing director of one of the nation’s largest and most successful hedge funds, D.E. Shaw & Co.But even as Summers takes the lead of economic policy thinking for the Obama White House, which has promised to be one of the most open and transparent in history, neither the Obama transition team nor D.E. Shaw would say exactly what Summers had done in his two years of work for the $36 billion hedge fund, or how much he has been paid.In a press release issued Monday, D.E. Shaw said only that Summers had been working on “various strategic initiatives, high-level research and advising the executive committee on the overall business.”Whatever he did for the hedge fund, Summers seems to have impressed his bosses.“As citizens, we’re delighted that President-elect Barack Obama has selected Larry Summers to head the National Economic Council," said D.E. Shaw managing director Max Stone in the statement. “Larry is an enormously gifted economist, and has already made major contributions to this country as a public servant, a researcher, and an academic leader.”As a treasury secretary under President Bill Clinton and a former president of Harvard University, Summers would have been enormously valuable for the hedge fund that prides itself on bringing together top talent from a wide range of backgrounds.D.E. Shaw was founded in 1988 by David E. Shaw, a former computer science professor at Columbia University, and is known as a major “quant” fund that specializes in using advanced mathematics and computer software to generate trading strategies.The aggressively nerdy firm brags that its 1,600 employees include the 2003 U.S. women's chess champion, a life master bridge player, a “Jeopardy” winner, as well as writers, athletes, musicians and former professors. One early employee was Jeff Bezos, who went on to greater renown as the founder of 2007, Shaw personally earned an estimated $210 million, reports Alpha magazine, and he spent a chunk of it on contributions to prominent Democratic politicians during the 2008 presidential cycle, including more than $3,000 to Barack Obama and $6,000 to Hillary Rodham Clinton, according to the Center for Responsive Politics.Overall, the hedge fund’s employees skew heavily Democratic, contributing more than $200,000 to political candidates in the 2008 campaign cycle, according to the center. Only $2,000 of that went to a Republican: Sen. Pat Roberts of Kansas.The hedge fund also has gotten much more involved in Washington policymaking in recent years, contributing to the Managed Funds Association, the trade group that has led the charge on resisting increased regulation and taxation of hedge funds in Washington.In 2007, the fund sold a 20 percent stake to Lehman Brothers, which filed for bankruptcy in September.One knowledgeable hedge-fund observer says Summers’ work at D.E. Shaw partly involved conducting research into emerging markets – those volatile but potentially lucrative stock exchanges in remote areas of the world.It’s not clear exactly what Summers would have been interested in. But a recent area of interest among hedge funds has been identifying ways the switch to electronic markets will create new liquidity on those exchanges, providing arbitrage opportunities for savvy American investors who can use the newly sped-up processes to take advantage of mismatches in prices.Summers, the observer said, provided valuable research to the firm. “This wasn’t a vanity job,” the observer said. “The Lawrence Summers connection makes sense – their approach is to get the best and brightest and figure out what to do with them.”The firm’s core specialty is in statistical arbitrage, which involves buying and selling huge numbers of stocks in very short amounts of time, ranging from mere seconds to several days. But how they make those decisions is very closely held information.“That’s where they get very secretive and squirrely and won’t tell you what they’re doing,” the observer said.A spokesperson for the Obama transition team declined to say what Summers had done for the hedge fund and how much he had been paid. But the Obama camp likely knows the answers, since the vetting questionnaire for applicants for administration posts requests tax returns and other detailed financial information, including the applicant’s net worth, real estate holdings, business partnerships, even gifts.Lightly regulated hedge funds are not required to file detailed information on their financial performance with the Securities and Exchange Commission. So, it’s difficult to estimate how well or poorly D.E. Shaw has weathered the global financial crisis in recent months.One person familiar with the industry says that investors generally believe that the firm has not had a disastrous year – which stands in stark contrast with many funds that have seen their value plummet. “Basically they are riding out the storm – so far,” the expert said.Executive compensation and lavish perks have become a hot-button issue in the midst of the economic calamity. In recent days, the insurance giant AIG announced that its CEO will accept only $1 in annual salary in the wake of that firm’s taxpayer bailout.And the Big Three automakers hinted that their CEOs won’t use their private jets next week to travel to Washington and plead for a government bailout, a symbolic response to criticism of their use of the jets to commute to the last round of congressional hearings.

1 comment:

bondman said...

Just a quick correction. The MFA was established in 1991, not 2007.