Hedge funds flex political muscle in election

By Svea Herbst-Bayliss

BOSTON (Reuters) - Hedge fund managers Ken Griffin and Dan Loeb are backing Democratic presidential contender Barack Obama, while Thomas Steyer and Marc Lasry are betting on his rival, Hillary Clinton.

Prominent New York hedge fund managers Louis and Zack Bacon have put some of their money on Republican front-runner John McCain, the senator from Arizona.

As the battle for the White House heats up, the fast-growing $2 trillion hedge fund industry is flexing its political muscle and could play a crucial role in the race for campaign cash in the costliest U.S. election ever.

So far, Democrats look to benefit most.

Hedge funds -- large, loosely regulated pools of investment capital -- gave more generously to Democrats than Republicans in the 2004 presidential elections and in the 2006 congressional races that swept Democrats into a majority in U.S. Congress, according to campaign finance data.

This trend has continued in 2008. Already in the 2008 election cycle, hedge funds have favored Democrats three to one over Republicans, according to the Center for Responsive Politics, a nonpartisan campaign finance research group.

Industry analysts, lawyers and managers say Clinton may have an edge over Obama in a fierce battle for their cash.

"I think hedge funds feel more comfortable with Hillary, who comes from a standpoint of raising money from New York financial institutions," said Columbia Law School professor and securities industry expert John Coffee.

"Obama talks about change and when you are a hedge fund, you don't want any change to the ground rules."

Hedge fund industry analysts said Clinton, a New York senator, has already developed a relationship with the once-secretive industry, which is becoming more comfortable in pushing certain political agendas.

"Many hedge fund managers are very socially minded people and they believe their wealth can make a difference in the world," said Denise Valentine, who focuses on hedge funds at financial consulting firm Aite Group.

"They especially want to make changes in health care and education, and those causes dovetail nicely with Hillary Clinton," she added.

RISING DONATIONS

Last year hedge funds donated $3.2 billion to presidential candidates, more than twice the amount they gave in 2000.

Clinton took in $681,250. Steyer's Farallon Capital Management contributed $120,100 and Lasry's Avenue Capital Group, which also hired Clinton's daughter Chelsea, chipped in