American hedge funds have increased their political donations by more than two thirds in the past four years and the figure is set to rise considerably in the run-up to the 2008 presidential election.

At a time when the industry is striving to deflect intensifying regulatory scrutiny, the top 50 hedge funds contributed $6 million (£3 million) to candidates for the House of Representatives and Senate, and their political parties, in 2005 and 2006, according to the Centre for Responsive Politics in Washington.

Steven Cohen, the head of SAC Capital, Wesley Edens of Fortress Investments, and Kenneth Griffin of Citadel were among the biggest individual donors over those two years. They gave $105,450, $42,300 and $68,900 respectively, while total staff contributions from their funds came in at $192,200, $169,100 and $217,433.

James Lacier, a senior Washington research analyst at Prudential Securities, said: “Hedge funds are becoming more active, in large part because there are regulatory issues hanging over their heads.”

Stephen Ansolabehere, professor of political science at Massachusetts Institute of Technology in Boston, said: “Industries tend to be reactive and whenever there is a rise in political donations you can be sure it’s down to concerns relating to legislation.

“It was the same with tobacco and casino companies in the mid1990s when the Democrats started going after the tobacco industry and the debate on gambling on Indian reservations was in full force.”

The $6 million in hedge fund contributions in the two-year “election cycle” of 2006, which also includes 2005, compares with the $3.6 million donated in 2001 and 2002, the last previous cycle that did not include a general election, when donations typically mushroom.

Hedge fund donations are expected to jump over the next two years to dwarf the $5.1 million given in the run-up to the 2004 presidential election.

Presidential candidates such as Hillary Clinton, Barack Obama, John Edwards and Rudolph Giuliani, the former New York Mayor, are seeking record financing. Mrs Clinton, Mr Obama and Mr Giuliani are expected to raise about $75 million this year.

Analysts said that the dramatic rise in hedge fund donations and this year’s expected jump were telling, but added that the sums involved were relatively small compared with the resulting political influence.

Matthew Bernstein, of the lobbying firm DLA Piper, estimated that hedge funds had quadrupled their lobbying expenditure — which is separate from political donations and has not been quantified — in the past three years.

At the same time, key players in the hedge fund industry are taking important roles helping to raise money for candidates.

Marc Lasry, the founder of the $12 billion Avenue Capital hedge fund, is a key fundraiser for Mrs Clinton.

She is also backed by Steve Rattner of Quadrangle and Alan Patricof, the founder of the US division of Apax Partners.

Paul Singer, founder of Elliott Associates, is one of Mr Giuliani’s principal fundraisers, while Mr Edwards, who left Fortress Investments in December to pursue his candidacy, is thought to be receiving advice from Fortress staff.

An alternative investment?

Funding bids for the White House

-Paul Singer

A founder of Elliott Associates. Republican donor

-Steven Cohen

Founder of SAC Capital hedge fund. Democratic donor

-Glenn Dubin

Co-founder of Highbridge Capital. Democratic donor

-Wesley Edens

Chairman and chief executive of Fortress Investments. Democratic donor

-Lisa Perry Wife of Richard Perry, the founder of Perry Partners. Hillary Clinton donor

-Alan Particof

Founder of the US arm of Apax Partners, the private equity firm. Hillary Clinton donor

-Kenneth Griffin

Chief executive of Citadel, the $14 billion hedge fund. Donor to both Democratic and Republican parties

Source: Center for Responsive Politics/Federal Election Commission

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