||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 capitalist system.
AR: Let’s move to a specific issue
of interest to the hedge fund industry: Taxing carried interest
as ordinary income. What’s your
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 tax system.
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
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
[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 service stocks.
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
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
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
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 business.
No, I invest in small banks, small business, big business,
and I’ve been very critical of some of the big
AR: What’s your plan for your hedge
fund if you are elected?
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
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
AR: We’re nearly out of time. Is
there anything you’d like to
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
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