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Fred Used Senate Experience To Aid Fund

Fred Thompson drew on his Senate intelligence experience to help a $3 billion investment group protect its wealthy investors’ cash from market fluctuations caused by international dust-ups and security threats.

Guggenheim Advisors, which invests a small group of ultra-rich clients’ cash in hedge funds, was good for Thompson, too. It paid him a healthy stipend to serve on an advisory board and boosted his presidential campaign by giving him a platform to explore a candidacy and an early infusion of campaign cash when he jumped into the race.

Thompson’s affiliation with Guggenheim in some ways bucks his efforts to cast himself as a good ol’ boy more attuned with regular folks than his competitors for the Republican presidential nomination. But the connection to hedge funds is not on its face inconsistent with his economic rhetoric, which stresses free market principles. However, it’s tough to know the nature of Guggenheim’s investments, since it’s not subject to disclosure requirements.

Thompson was tapped for the board soon after leaving the Senate in 2003 because of his knowledge of “foreign affairs [and] geopolitical risks,” said Lawrence Lindsey, a former top economic adviser in the Bush administration who served with Thompson on the board.

“If you want someone who knows about geopolitical risks, he’s a natural person to put on your board,” Lindsey suggested. A former Federal Reserve governor who also advised the first President Bush and President Ronald Reagan, Lindsey bonded with Thompson on Guggenheim’s board and now serves as his campaign’s top economic adviser. 

“The reason I’m doing what I’m doing,” Lindsey explained, “is [Thompson] is one of the most thoughtful — meaning cerebral — knowledgeable  people I’ve ever run into in the political world. He really thinks about what’s going on and knows what’s going on.”

Thompson joined Guggenheim’s board four months after retiring from the Senate, where he had represented Tennessee for eight years and served on the intelligence and foreign relations committees and the National Security Working Group.

His service on the Guggenheim board, which Lindsey said is only advisory and meets three times a year, was revealed in Thompson’s personal financial disclosure report, released this week by the Federal Election Commission.

All presidential candidates are required to file the reports, which are intended to weed out potential conflicts of interest through transparency, but list only broad ranges of values for candidates’ income, assets and debts.

Thompson’s campaign declined to comment, but his report shows that since the beginning of last year, Guggenheim paid him between $100,001 and $1 million for what the report called “personal services.” 

And, as he was gearing up for a presidential bid last spring, Guggenheim hosted an event at New York City’s posh St. Regis Hotel at which he and Lindsey were slated to give a briefing on “economic policy and national security,” according to a May New York Times blog post. It said reporters were barred from attending the event and were asked to leave the floor of the hotel on which it was held.

According to Thompson’s disclosure report, he stepped down from the board in June, the same month he created a committee to explore — and raise money for — a presidential campaign. In his first month of fundraising, Guggenheim’s executives and managers contributed $13,500 to the committee, according to a report the committee filed with the Internal Revenue Service.

That made the fund among Thompson’s top contributors in his crucial early fundraising push. In his first month of fundraising, he accepted at least $34,900 from donors affiliated with hedge funds and private equity irms, a Politico analysis found.

That pales in comparison to other presidential candidates who got an earlier start on fundraising, such as Republican Rudy Giuliani, a former New York City mayor, and Democratic Sen. Barack Obama of Illinois. Through the first half of the year, they accepted $880,000 and $830,000, respectively, from the hedge fund and private equity industries.

In all, the industries have given nearly $4.8 million this year to presidential candidates.

The heavy political spending is a relatively new phenomenon for the industries. It coincides with efforts by regulators and legislators to impose disclosure and other rules on the funds, which are largely unregulated.

From the 2004 to the 2006 election cycles, executives at the nation’s 30 biggest hedge funds increased their political donations by nearly 17 percent, to $14.7 million, according to FEC data analyzed by the nonpartisan Center for Responsive Politics in partnership with Absolute Return, a magazine covering hedge funds.

But ties to the industry also can cause headaches for politicians, particularly if they’re linked to hedge funds that profit from market fluctuations with politically touchy undertones. 

Take former North Carolina Sen. John Edwards, whose Democratic presidential campaign has received nearly $240,000 from donors linked to the hedge fund and private equity industries. Edwards has campaigned partly on ending poverty, yet he and his wife had $16 million in investments tied to Fortress Investment Group, a hedge fund which also paid him $480,000 in consulting fees and had invested in companies offering subprime mortgages to high-risk borrowers.

After The Wall Street Journal reported that the companies initiated foreclosure proceedings against more than 30 victims of Hurricane Katrina, Edwards pledged to get rid of investments linked to those lenders.

Thompson’s situation is different, said his economic adviser, Lindsey.

The advisory board, which he said consists of six or seven members, isn’t involved in deciding how or where the fund should invest, he said.

“It’s simply a way of informing the people who make those decisions about trends that are happening in the world,” Lindsey said. “So the people on the board were all people who would know something about various trends and risks that are happening.”

Other members of the board include former U.S. ambassadors Stephen Bosworth and Edward Gabriel and two unnamed former energy executives, according to a 2006 article in Institutional Investor. Neither Bosworth nor Gabriel returned phone calls.

Corporations often stock their boards with dignitaries — including former government officials — to provide advice, but also to lend their prestige and connections.

But Guggenheim Advisors, which was created in 2002 as Guggenheim Alternative Asset Management, is a private fund that isn’t required to disclose information about its investments or its internal workings. A call to the group’s New York offices seeking information about the fund and its board was not returned.
The Institutional Investor story said the fund had less than 100 clients, whose money it invested in 35 to 40 hedge funds.

The fund was started by Guggenheim Partners, which manages the assets of the wealthy family of philanthropists by the same name, which made its fortune in mining and smelting.

A spokesman for Guggenheim Partners referred questions about Guggenheim Advisors’ board members and their fees to the Bank of Ireland, which in early 2006 acquired a majority stake in the fund.

A Bank of Ireland spokesman did not immediately respond to requests for comment.