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Clipping America’s Hedge Funds

Research & Commentary
February 08, 2016

by Stephen Lerner

Activists are taking on the billionaire financiers who are driving inequality and corrupting our politics.

The growing Hedge Clippers campaign is pioneering new strategies to prevent hedge funds from cashing in on corporate wage squeezes and benefit cuts.

The growing Hedge Clippers campaign is pioneering new strategies to prevent hedge funds from cashing in on corporate wage squeezes and benefit cuts.

By Stephen Lerner

Hedge funds and their billionaire managers offer up a powerful symbol of the forces that are driving America’s political and economic inequality. Getting the names and faces of these hedge fund billionaires before the public can help us tell a vivid story of what’s gone wrong with our economy and our politics — and help us build a movement to slice away at that billionaire power.

The “Hedge Clippers” campaign is doing plenty of that slicing. Begun in New York and now active in several other states, the effort is organizing at the state and federal levels around seemingly separate issues that range from school privatization and public sector cutbacks to environmental degradation and the ongoing assault on worker rights.

But these issues have much more in common than a first glance might suggest. They all trace back to the business and political practices of some of our country’s largest and wealthiest hedge funds.

Billionaire hedge fund managers have been leveraging huge amounts of investor capital to extract enormous cash payouts for themselves, the ultimate in “winner-take-all” economics. To squeeze out these payouts, they’ve been pressuring the enterprises they dominate to slash wages, eliminate pension and health benefits, and offshore middle-class jobs.

Hedge fund fee structures, in the meantime, divert most of the profits these tactics generate back to self-dealing hedge fund managers. The investors that supply hedge funds their capital — like public employee pension funds — end up getting diminishing or actual negative returns.

Hedge fund billionaires also reflect our “winner-take-all” politics. Their massive campaign donations and lavish funding of lobbyists, right-wing think tanks, and other influence-peddlers buy unfair legal, fiscal, and regulatory advantages. Some of these billionaires do fund private philanthropy, but many of the most high-profile financiers focus on rigging the political system in their own favor.[pullquote]Hedge fund fee structures divert most of the profits generated to self-dealing hedge fund managers.[/pullquote]

These hedge fund “masters of the universe” couldn’t be riper for attack. And the Hedge Clippers campaign is attacking. One key campaign strategy: Hedge Clipper activists are pushing public pensions and university endowments to divest from hedge funds.

The economic argument for disinvesting from hedge funds makes powerful economic sense, much like the case for divesting from fossil fuel companies. According to a just-released Hedge Clippers report, U.S. university endowments had over $100 billion invested in hedge funds in 2015. Hedge funds last year took one of every five dollars that American universities invested.

Hedge funds, this new Hedge Clippers report makes clear, are taking universities for a ride. These funds charge high fees and offer low returns — and then use the huge profits they make to support politicians and organizations that oppose public employee pension plans and policies that support higher education.

In 2015 alone, hedge funds collected an estimated $2.5 billion in fees from university endowments, an amazing figure give the abysmal investment returns hedge funds delivered over the course of the year. Overall, between 2009 and 2015, university endowments paid 60 cents in fees to hedge fund managers for every dollar of return on investments.

The Hedge Clippers campaign is also working to prevent hedge funds from cashing in on the Puerto Rican debt crisis. Working with people in that country and throughout the Puerto Rican diaspora, the campaign is pressing the Federal Reserve to refinance Puerto Rico’s debt and force the hedge funds to take a haircut.

The campaign is also helping forge ties among anti-austerity activists by exposing how some of the same hedge fund managers who are profiting off Puerto Rico’s crisis — like Ken Griffin from Citadel Capital — are driving the push for budget cuts in Chicago and other cities across the United States.

The single most extreme example of how hedge fund managers have rigged the rules may be the carried interest loophole. This sleight of hand lets hedge fund managers pay taxes at a 20 percent capital gains rate on the profit share they get paid to manage investment funds, rather than the 39.6 percent rate they would pay under normal tax schedules.[pullquote]In 2015 alone, hedge funds collected an estimated $2.5 billion in fees from university endowments.[/pullquote]

This incredibly generous loophole will cost taxpayers $180 billion in lost revenue over the next ten years.

Reformers have tried repeatedly, without any success, to get Congress to fix this carried interest loophole legislatively. The Hedge Clippers campaign has now come up with a new approach. The campaign’s novel legislative strategy calls for closing the carried interest loophole on the state level to recapture the money lost federally. New York would gain an estimated $3.7 billion in revenue per year through this state-level fix.

Other states could see staggering annual savings as well. California, for instance, would gain $1.6 billion and Massachusetts $938 million. To hedge against hedge fund “venue shopping” and to maximize impact, the campaign has spread to all these key states, and expansion plans are also underway in New Jersey, Pennsylvania, Ohio, Minnesota, Illinois, and Florida.

Next on deck from Hedge Clippers: a paper on how hedge funds avoid taxes and solutions. Want to stay informed on the ongoing struggle to rein in hedge fund wealth and power? You can sign up for Hedge Clippers updates online at, a site where you can check out everything from 25 campaign white papers to a searchable, annotatable database of 86,000 hedge fund dark-money campaign contributions.

The Hedge Clippers campaign would welcome your support. You can get involved by signing your organization on to upcoming Hedge Clippers reports or distributing Hedge Clippers research on a variety of timely issues, including how hedge funds are perpetuating racial injustices and boosting the fossil fuel industry. To follow darkest money’s newest nightmare, @GoHedgeClippers and use the #HedgeClippers to tweet and share.

Also to keep in mind: The Hedge Clippers campaign is setting up a volunteer war room and seeking help with folks with research, media and communications/graphics backgrounds. Just drop a note here if you’re ready to clip some hedges.

Stephen Lerner, a fellow at Georgetown University’s Kalmanovitz Initiative for Labor and Working Poor, is working with the Hedge Clippers Campaign.

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