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How Hedge Funds (Secretly) Salvage Their Attain in Washington

How Hedge Funds (Secretly) Salvage Their Attain in Washington

With swept-aid silver hair and a prestigious résumé, James Satisfactory. Glassman cuts the classic figure of a Washington wise man. He’s a used undersecretary of Command, specialize in-tank founder, and handiest-selling creator, with a regarded as belief on appropriate about any Beltway project. In July 2014, when a Dwelling subcommittee held a listening to on Latin American economies, its people requested Glassman to discuss first. “Thanks, Mr. Chairman,” he said, and started to testify: “A actual and affluent Latin The United States is severe, now not appropriate to Latin American citizens themselves, but to all of us right here in the US.  … ”

Glassman, carrying a unhappy suit and crimson tie, added to the affirm some very particular strategies. First he charged Argentina with attempting to renege on its debt, after which he accused Puerto Rico of the identical thing. Then he highlighted a Caribbean tax dispute. Then he gave a cry-out to used bondholders of Favorite Motors Co.

If Washington might per chance also be conception to be a manufacturing facility, opinions love these are the raw materials that obtain became into rules, regulations, and public policy. Their provenance matters. Glassman by no device talked about it in his testimony, but records display hide he became then working for an affiliate of DCI Group—a Washington public affairs firm whose client checklist meshed perfectly alongside with his talking aspects. One DCI client, a $25 billion hedge fund, became feuding with Argentina. Any other became suing Puerto Rico. DCI had additionally lobbied on the tax dispute and the GM project.

Glassman, seventy one, who said in an electronic mail that he stands by his testimony, is a key asset in a furtive marketing campaign by Wall Side street to bend the political route of. Correct thru the final two an extended time, hedge funds dangle grown explosively, with a collective $Three.four trillion below management. No longer negate to acquire bets and perceive from the sidelines, the finest funds an increasing number of are attempting to manual executive outcomes—equivalent to negotiations over sovereign debt—so as that their investments are likelier to pay out. When billions are at stake on a given wager, a lobbying marketing campaign appears to be like low-assign. But hedge funds know that they’re politically toxic—portrayed by both parties as overpaid plutocrats—and love that mighty of these offensives be performed in secret. That’s the put DCI comes in, offering credible-seeming voices to discuss up for the funds’ interests—voices love Glassman’s. It’s now not unlawful, but it undermines frequent strategies of transparency and belief.

James Glassman.

Source: American Enterprise Institute

For the reason that work is hid, there’s no device to know for sure what number of hedge funds are leveraging Washington to learn their portfolios. But interviewing insiders and scouring public records, Bloomberg Businessweek identified six predominant impact campaigns waged on behalf of investors in a particular stock or bond since 2006. DCI, it appears to be like, coordinated all six.

The campaigns are remarkably identical. In the aid of the scenes of legit Washington, the corporate usually crafted narratives portraying investors as victims of corrupt governments. DCI rounded up current American citizens who agreed with its purchasers and marched them into lawmakers’ areas of work to lend a veneer of grass-roots purple meat up. Meanwhile, Glassman and a complete lot of ostensibly just intellectuals blanketed panels, hearings, and press conferences with the identical storyline, without ever pointing out their connection to DCI or the hedge funds. If all went nicely, the targets of these campaigns—administration officers, media “conception leaders,” and lawmakers—didn’t know they had been being lobbied, mighty much less who paid for it.

It surely labored at the Latin The United States listening to in 2014. “In the occasion you dangle a complete lot of thoughts,” Consultant Matt Salmon (R-Ariz.) really helpful Glassman, “and even as you wanted to draft a memo for people of this committee, I promise you we can save it to appropriate use.” Salmon really helpful Bloomberg Businessweek this month that he had no inkling of Glassman’s links to hedge funds. Filtered into Glassman’s pithy remarks, the funds’ money had slipped undetected into the Washington provide chain.

Corporations dangle prolonged susceptible astroturfing—spending money in the aid of the scenes to construct the appears to be like of advantageous purple meat up—to come their interests. What hedge funds are thus a ways builds on the shady apply and nearly makes it seem quaint. Mammoth firms dangle thousands of staff and millions of customers; what’s appropriate for them might per chance well profit their stakeholders too, and the firms’ priorities are on the total actual over time. Hedge funds are a complete lot of. They make use of barely few folks, and a ways of their economic success accrues to their homeowners, a itsy-bitsy neighborhood of centimillionaires and billionaires. A hedge fund might per chance well also very nicely be for a given policy as we sigh and towards it the following day, driven by prices on a hide. It’s one unsuitable device wherein skyrocketing inequality is giving just a few americans an outsize role in public existence.

The financiers’ valuable partner in this feat is DCI, prolonged a dawdle-to Washington firm for astroturfing. (The corporate discipline has dozens of competitors, from spacious public-family retail outlets to boutiques, just a few of them started by DCI alumni.) The corporate became founded in 1996 by three veterans of R.J. Reynolds Tobacco Co., including Thomas Synhorst, whom one left-leaning e-newsletter nicknamed the “Johnny Appleseed of astroturf.” Synhorst, who alongside alongside with his company declined to comment for this memoir, remains one among a minute neighborhood of partners overseeing greater than one hundred forty staff in Washington and Brussels. Basically based mostly on one staffer’s LinkedIn page, annual income is greater than $60 million. For greater than a decade, a linchpin of DCI’s ability to change the terms of debate in Washington has been James Glassman.

Raised in D.C., Glassman came up thru the media ranks—publisher of the
New Republic
, editor of
Roll Call
—and co-wrote the 1999 e-book Dow 36,000, an prompt icon of dot-com cheerleading. The next one year, he launched
Tech Central Get
, an on-line e-newsletter fascinated with know-how policy that he called “a roughly watchdog in an put wherein few folks seem like doing prolonged-term principled taking into consideration.” Earlier than prolonged,
Washington Month-to-month
published that the positioning wasn’t straight journalism but barely a lobbying operation in conceal, controlled by DCI’s partners and consistently pushing problems that aligned with purchasers equivalent to Microsoft Corp. and AT&T Inc. The magazine credited Glassman with inventing a new invent of impact peddling: “opinion laundering.” (In his emailed observation, Glassman declined to discuss about his relationship with DCI but said that his writing, speeches, testimony, and a complete lot of work had been “per my prolonged-held beliefs. … Decisions on whether to jot down something—and straightforward the device to jot down it—are my dangle, and I stand in the aid of what I write.”)

Favorite Motors retiree Mal Hanson and his companion, Marie, succor hands at a details conference in Michigan in 2009. The occasion became dwelling up by GM Fundamental Side street Bondholders, a neighborhood organized by consultants at DCI.

Photographer: Paul Sancya/AP Photo

Between the Washington Month-to-month exposé and the dot-com smash, Glassman’s profession might per chance well had been over. But D.C. appropriate shrugged. He became quickly appointed to a executive put up overseeing State of The United States, then joined the U.S. Division of Command at ambassador nefarious.

Upon leaving say of job in 2009, Glassman became president of a DCI entrance neighborhood called World Sigh Institute. That spring he became his consideration to GM, criticizing the Obama administration’s handling of the carmaker’s monetary waste in a New York Times op-ed. His phrases echoed those of a company identified as GM Fundamental Side street Bondholders—in theory a bunch of current investors who had been retaining rallies around the country. Emails obtained by Bloomberg Businessweek display hide that DCI became organizing the selling campaign, and in newest interviews, just among the neighborhood’s leaders said that they had no opinion who became paying DCI’s funds. (A Times spokesman declined to comment on Glassman’s piece but said the paper repeatedly asks contributors to express monetary interests.)

Over the years, as Glassman has shuttled from one DCI entrance to one other, he’s opined on a staggering array of problems, usually with a take that coincides with the interests of a DCI client. He’s defended the Asian palm oil industry, praised a Congolese mining magnate, and testified before Congress in prefer of insurance policies that profit Nasdaq Inc.—all DCI purchasers at the time.

One of the most longest-running themes in Glassman’s commentary has been the plight of Argentine bondholders. After the country defaulted in 2001, most investors authorized a deal to commerce their bonds for more cost effective securities. But Paul Singer, the billionaire chief of hedge fund Elliott Management, didn’t. He took Argentina to courtroom to acquire full payment—a prolonged-shot dawdle that might per chance well generate an extensive profit.

For Singer, DCI mounted an impact marketing campaign that might per chance well stretch a decade and target all three branches of executive, becoming a template for later projects. Tax paperwork display hide that DCI earned no lower than $16 million from its Argentina work in one four-one year interval. Its job became to reshape legit belief in Washington and Europe, and right here Singer had a immense downside: Argentina’s president became portraying him as a “vulture” investor taking advantage of the misfortunes of the uncomfortable.

DCI labored to shift the purpose of curiosity from Singer. In courtroom, it helped spherical up briefs from allies to construct a sense of immense purple meat up past Wall Side street. It started a coalition, American Job Pressure Argentina, with dozens of people—including some usually identified with sovereign-debt disputes, such because the Nationwide Grange, a farmers’ fraternal show, and the Colorado division of the American Association of College Professors. (It’s now not obvious that the total people knew of their participation. No lower than three now advise they by no device agreed to affix ATFA.) Individually, a motley consortium—starting from a Tea Event–aligned neighborhood to the Nationwide Gloomy Chamber of Commerce—wrote letters to lawmakers and issued public statements.

It sounds nearly innocuous. But mighty of Washington policymaking originates with such verbalize amongst wonks: the network of nonprofits, specialize in tanks, and advocacy groups that aid the political parties generate strategies, dwelling priorities, and originate skills. Now not like marketing campaign donations or formal lobbying, money spent right here is never disclosed. If an opinion is getting consideration in policy circles, it’s usually very unlikely to know whether just a few nicely-positioned donations from hedge funds greased the device.

Basically based mostly on two used DCI staff who requested anonymity to discuss freely about the corporate, a unit called Strategic Alliances maintains ties with dozens of nonprofits and advocacy groups, regularly contributing money after which soliciting for their assistance on projects. Any other used DCI employee describes joining the corporate from the ranks of the wonks. As soon as at DCI, he became awed to learn the device many Washington-put nonprofit staffers, policy experts, and even journalists had been secretly fed traces by his new employer. He came to stare his used colleagues as puppets—and he had change into the one alongside with his hand on the strings.

In Can also just 2012, initiating air a Washington conference the put Argentina’s vice president became scheduled to discuss, a spacious inflatable rodent appeared, carrying an Argentine flag and retaining a register its claws: “I’m the rat in the G20.” A month later, the identical message—that Argentina didn’t belong in the G-20 neighborhood of countries—appeared in a affirm published by the Nationwide Taxpayers Union, a Washington nonprofit. The affirm’s co-creator became Glassman, who publicized it with items in the Wall Side street Journal and
International Protection
. The save a question to and op-eds didn’t express any connections to hedge fund money. But one person with knowledge of the subject says DCI staff planted the rat and arranged for the NTU to be compensated. (A spokesman for the Journal said Glassman has assured the e-newsletter he wasn’t representing DCI or a hedge fund. International Protection declined to comment. Pete Sepp, president of the NTU, said he can’t discuss donors but that his group isn’t “a pay-to-play operation, interval.”)

As the Argentina combat started to tilt Singer’s device, DCI pitched its talents to more hedge fund purchasers. Paulson & Co., creep by New York billionaire John Paulson, hired the firm for a marketing campaign supporting his funding in Fannie Mae and Freddie Mac, in response to a person with knowledge of the subject. (Paulson declined to comment.) Various funds that owned Puerto Rican debt signed on. The hedge fund Autonomy Capital sought aid in a fight over Icelandic bonds, a person with knowledge of that assignment says. In every case, Glassman helped lead the worth.

In 2013, Glassman announced he became joining a consulting firm called Public Affairs Engagement LLC as chief executive officer. Registration records display hide it became dwelling up by Synhorst and DCI’s company secretary. Basically based mostly on two used DCI staff, PAE had say of job situation inner DCI’s Washington headquarters, the put Glassman regularly reported to work.

As Glassman championed more hedge fund campaigns, his advocacy as soon as in some time clashed alongside with his dangle old views. In a memo he gave lawmakers at the 2014 Latin The United States listening to, he prompt that Puerto Rico be allowed to portray monetary waste. But he insisted the island’s electric utility shouldn’t; at the time, DCI became representing BlueMountain Capital Management, an proprietor of the utility’s bonds. A one year later, he reversed himself, declaring that a Puerto Rico monetary waste could be a “catastrophe.” No longer prolonged after, DCI started a marketing campaign for bondholders that might per chance well lose payment in the kind of monetary waste. (In his observation, Glassman said that “all of us are trying for consistency, but the info on the bottom in Puerto Rico changed.”)

Attributable to a string of courtroom victories, Singer prevailed towards Argentina in 2016, incomes his fund greater than $2 billion in profit. (In a observation, Elliott famed that thousands of bondholders and pensioners additionally benefited.) Various DCI projects haven’t long gone so nicely. Congress allowed Puerto Rico to portray monetary waste, and Fannie Mae shareholders dangle failed to acquire the manager to advance aid to their aid. A predominant obstacle has been Senator Bob Corker, who wrote a invoice that might per chance well wind down the corporate. By a shareholder neighborhood that it helped dwelling up, DCI has promoted studies of ethical lapses by the Tennessee Republican. “It’s been somewhat comely to me,” Corker said at a 2016 listening to, “to stare the lengths that some hedge funds will dawdle to substantiate out to shape public policy in a system that might per chance well reap astronomical advantages.”

Attributable to DCI—and an absence of rules around disclosure—there are few limits to how a ways hedge funds can take this apply. One of the most corporate’s more incongruous assignments thus a ways became the case in Iceland, the put Autonomy Capital went to courtroom in 2016 to speak the manager’s medicine of international investors. Institute for Liberty, the Tea Event-aligned neighborhood that previously advocated on Argentina, dwelling up a internet put and a Facebook page called Iceland Peek that advocated for the funds’ situation. Glassman hosted a panel discussion in New York and attacked Iceland’s situation in the Journal and Bloomberg Seek. (Bloomberg LP, which owns that put and this magazine, said it requires op-ed writers to express relevant monetary interests.) Extra voices piped up, most of them recognizable from the Argentina marketing campaign. DCI operatives started exhibiting up at Reykjavik’s swankiest hotels and hiring native consultants for political guidance. Earlier than a 2016 parliamentary election, Iceland Peek sold full-page classified ads in Reykjavik newspapers hinting at misconduct by a central monetary institution legit.

The classified ads, translated poorly, might per chance well even dangle completed more hurt than appropriate. (The finest wrongdoing they published, one wag commented on-line, became “against the law towards the Icelandic language.”) But in the discontinue, Iceland settled with the international funds closing one year on more sufficient terms. Autonomy, which took the improved deal, declined to comment, and Institute for Liberty didn’t acknowledge to inquiries.

Glassman and the a complete lot of pundits didn’t take a victory lap. They simply went silent. A Reykjavik reporter seen his DCI contact stopped returning calls. The Iceland Peek internet put disappeared, and its social media accounts had been erased. The money had completed its work, and DCI became off to its next assignment.

 

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