(From my mailbox – PP)
Don’t Be Fooled: Hedge Funds Aren’t the Bad Guys
by Jeana Goosman, Goosman Law Office
When we think of what moves South Dakota’s economy, we think of the usual drivers of productivity, such as mining, agriculture, manufacturing, and even tourism. The people who work in those industries are proud to do so, providing for their families and their state. Even though these industries are at top of mind, they aren’t the only pistons in South Dakota’s economic engine.
Hedge funds, a misunderstood but highly active aspect of the financial services economy, work to secure financial stability for millions of Americans and deliver for South Dakota.
Many people don’t realize that university endowments, non-profits, and pensions invest in hedge funds to grow their market portfolios. It happens across the country and it happens here in South Dakota. As these hedge fund–managed portfolios grow, the gains are passed on to underlying investors. In many cases, that means retirees, charities, and aspiring college students. Organizations representing these investors rely heavily on hedge funds to secure their financial stability, so that they may provide for those that depend on them. If our elected officials in Washington D.C. fail to understand this and pass too many restrictions on hedge funds, it’s the underlying investors that will suffer the consequences.
Education is a must for our children and young adults in South Dakota. As the cost of higher education becomes more and more expensive nationwide, hedge funds are actively securing the financial stability of university endowments, which results in more scholarships granted to aspiring South Dakota college students. Across the Mount Rushmore state, colleges invest in hedge funds for their students. The University of South Dakota Foundation, representing one of the largest universities in the state, invests $41 Million; Augustana College invests $7 million and the South Dakota School of Mines and Technology Foundation invests $2 million. It’s simple: without hedge funds, both the financial stability of these academic institutions and the academic future of many of their students would be in jeopardy.
Charities and non-profits do a tremendous amount of good for South Dakota. Communities both large and small rely on them for wide variety of services and acts of good will. I saw this firsthand during my time as a member of the South Dakota House of Representatives. Hedge funds take investments made by charities and non-profits and grow them over time, passing the benefits to our communities through the organizations that serve them.
In addition to providing for colleges and charities, hedge funds also secure the retirement future of thousands of South Dakotans. The South Dakota Retirement System invests $81 Million in hedge funds on behalf of 89,685 plan participants. This money grows through the smart, sophisticated investment strategies hedge funds utilize. As pensions grow, their beneficiaries can take solace in the fact that their financial wellbeing is in good hands. After all the past year has brought, peace of mind has become extraordinarily valuable. Fortunately, through growing investments made by pensions, hedge funds are delivering peace of mind to South Dakota retirees.
The message from all those invested in hedge funds is clear: this critical component of the economy exists on Wall Street, but delivers for Main Street Americans. Politicians and regulators need to internalize this message and remember it throughout the current legislative session. Punitive measures designed to punish hedge funds will only hurt retirees, charities, and hardworking people across South Dakota.
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Jeana Goosmann is the CEO and Managing Partner of Goosmann Law Firm. She regularly appears on media as the voice of legal. Jeana represents multinational corporations, elected officials, billionaires on Forbes list, and entrepreneurs.
Although Ms. Goosmann doesn’t mention it, I believe the federal restrictions she alludes to are radical ESG rules. ESG stands for “environmental, social, governance,” all dreamy left-wing nonsense gussied up as “responsible investing.” What they do is commit corporations to all the latest woke projects, at the expense of productivity and profits, which tilts investment strategies into more political and less financial directions.
I think this is a bit of a generalization, and misdirects the negative reputation of hedge funds. We can all agree, lumping all hedge funds together and labeling them as bad isn’t a good move. However, it does not address why many hedge funds have been labeled bad. Perhaps it is because they are business and job killers? There are countless reports of these large hedge funds shorting public stocks, and then promoting the short via negative reporting. Once the stock drops, they profit and pay 15% gains tax, then leave the business in shambles, and employees searching for employment once the business has been acquired or closes (ref. airlines). This just recently was showcased in the news with Gamestock, a group of small investors have raised the price up and hit some hedge funds hard. I don’t know about anyone else, but putting all my eggs in one basket and eliminating social security to invest in the stock market is ludicrous. The volatility showcased with GME proves why we shouldn’t trust wall street with our future.
To pile on:
1. Hedge funds contributed to the housing crisis by playing fast and loose with derivatives and other types of leveraged options. When things started going sideways, this leverage helped the economic devastation.
2. Activist stockholders, many of which are hedge funds, frequently have little interest in the long term health of the organizations they own stock in. They are beholden to 10ks and squeezing every penny out of businesses before moving on, wellbeing of employees be damned. Look at what Nelson Petz and Trian did to Dupont.
3. For all the talk of what Hedge Funds do to help college students, they haven’t made a dent in average expense. Great, they have increased the endowments of already insanely wealthy universities but, as she seemingly acknowledges, those earnings are not being past on to students as cost savings. College continues to grow MORE expensive at a rate that far outpaces inflation.
Trying to make it seem like hedge funds are the friend of the little guy is almost comical because it requires you to remove most context from who they are and what they do.