||Hedge fund manager Eric Hovde
has his sights on the Senate (Source: ericforsenate.com)
Eric Hovde, a hedge fund manager running for the U.S. Senate
from Wisconsin, is quick to criticize Wall Street practices but
slow to advertise his tenure in the hedge fund industry.
The Republican primary candidate, vying for an open seat in
a state filled with Tea Party activists, is the founder of $360
million Hovde Capital Advisors, a Washington, D.C. hedge fund
trading mostly in the stocks of relatively small financial
institutions. But the
biography on his campaign website makes no mention of the
fund. His other businesses
include firms involved in real estate, investment banking and
private equity, as well as a foundation.
Hovde, whose father was undersecretary at the U.S.
Department of Housing and Urban Development during the Reagan
administration, faces an uphill climb to get into the general
election. Former governor Tommy Thompson and state Assembly
speaker Jeff Fitzgerald are among the other candidates running
for the GOP nomination. Because Hovde only entered the race
this month, no public polling is immediately available on his
In a telephone interview with AR, he struck back
against the idea that he is running away from his hedge fund
background, and offered his views on a wide variety of issues
important to the industry.
"I don't hide from the fact that I manage money. I have an
asset management business, a hedge fund business," he says.
"There's nothing to hide from. There's nothing that my funds
have ever done that is even slightly wrong."
AR: What about your experience as a hedge fund
manager prepares you for such a big public
Well, you know I'm not strictly a hedge fund manager. I own
some broadly different businesses-community banks, real estate
companies and a variety of things.
Our country so desperately needs right now people who
understand the financial system, the credit markets, the global
capital markets. If you go into Washington and talk to
politicians, these guys just don't get it, they have no clue in
understanding how the financial markets work.
AR: Just to go back, you may run some other
businesses but you do have a
$360 million registered hedge
AR: You're very tough on Wall
It's a huge part of your
platform.How do you square that
with your experience working in finance for so many
You can do right and do well, and that's what I don't
understand about too many people on the Street. There are a lot
of wonderful, ethical hedge fund managers, investment bankers
and other people in the industry. Unfortunately, what happened
is there became far too many that broke all kinds of ethical
and moral standards. The consequence is that large chunks of
the American public no longer have faith in the free market
AR: Let's move to a specific issue of interest
to the hedge fund industry: Taxing carried interest as ordinary
income. What's your position?
My position on the issue is that our whole tax system should
be thrown away and redone. We have the highest corporate tax
rates in the world right now. If you're a small to medium-size
business, you're getting taxed in the mid-to-high thirties, you
have almost no deductions. If you're a multinational
corporation your effective tax rate is somewhere around half
that. Get rid of every single loophole but for a couple like
charitable deductions and, for now, the mortgage interest
deduction. I don't think there should be any sacred cows in the
The IRS has become an utter monstrosity. Heck, I'm a
financial expert-most of the guys in the hedge fund industry
are financial experts-but yet we all have to have somebody
prepare our tax returns.
AR: So if there were an up-or-down vote to tax
carried interest as normal income…?
I probably wouldn't support it because the simple fact is
that it would be solely on that issue. But I'm probably never
going to be voting on that issue [alone].
AR: How do you respond to the criticism, which
has also gone to Mitt Romney, that as someone who runs a
private fund, an opaque vehicle, you were part of the problem
in 2008, and you're not part of the solution?
[Raises voice] What did I do? That is a silly comment. There
is nothing that our fund investing in the financial services
sector did to contribute to any aspect of the problem. I wasn't
originating junk mortgage products. I wasn't packaging them in
complicated financial products like CDOs and selling them to
pension plans. I did none of that! I invest in financial
There are a lot of hedge funds that played no role in the
financial collapse. Zero. Now, I'm sure there are some that may
have played a role but the vast majority didn't play any
significant role in that crisis.
AR: Then do you think this additional push to
get hedge funds to register and disclose more about their
positioning is a little overblown?
Yeah. Frankly, we have regulatory overreach at every single
level of our government. One of the big things that needs to be
done, just like President Reagan did when he came into office,
is a massive push for deregulation.
AR: One thing that hedge funds are sometimes
confused about is the use of expert networks and how much they
can use these middle-men. Do you think there should be tougher
regulation on that?
I think there should be tighter regulation on it. I don't
think people should be able to buy access, just like certain
firms shouldn't be able to have a direct tie-in to the Federal
Reserve to get information ahead of the market.
AR: Did you ever employ such networks to
research for your fund?
AR: When you go and talk to citizens on the
campaign trail, how do you present the industry? Clearly you
don't say I'm a hedge fund manager; instead you say I'm a
financial advisor, I own community banks, etc. What is the
reaction you get?
I don't hide from the fact that I manage money, I have an
asset management business, a hedge fund business. I don't hide
from that fact-there's nothing to hide from. There's nothing
that my funds have ever done that is even slightly wrong. We
buy and sell stocks, OK? How has the reaction been? It's been
largely very positive.
AR: It's interesting because you are running as
a Republican, but in the Tea Party movement there is a lot of
sentiment against big banks and big business-and you have made
a career of investing in big banks and big
No, I invest in small banks, small business, big business,
and I've been very critical of some of the big business
AR: What's your plan for your hedge fund if you
That's something I have to think through whether we transfer
that to the team. That isn't a conclusion that is fully reached
at this point.
AR: What do you think of those studies that say
U.S. senators do better than average in
investing their own money?
Well, of course! I didn't even know they didn't have to
adhere to our securities laws. I saw that
piece on '60 Minutes' on insider trading and it made me
sick. But, you know, that's the Congress and Senate. They write
laws for everybody else and not themselves.
AR: We're nearly out of time. Is there anything
you'd like to add?
Could you please put one thing into this article? I say to
my fellow colleagues, I say to others in the asset management
and hedge fund business: Get involved. We desperately need
people who know the financial markets. We need people who
understand economics in the system. I don't want to do this for
a lifestyle. We need people who are willing to do this for a
sacrifice to get this country turned around.
AR: Does that mean you're a one-term
I'm not going to say that, but put it this way: I sure the
hell ain't gonna be anything more than a two-term senator. I'm
gonna go there, I'm going to try to get the job done and then
hopefully I can go back to a wonderful private sector life.
Interview has been condensed and