When Senate Democrats finally brokered a compromise over the proposed health-care law, a group of hedge funds were let in on the deal, learning details hours before a public announcement on Dec. 8, 2009.
The news was potentially worth millions of dollars to the investors, though none would publicly divulge how they used the information. They belong to a select group who pay for early, firsthand reports on Capitol Hill.
Seeking advance word of government decisions is part of a growing, lucrative—and legal— practice in Washington that employs a network of brokers, lobbyists and political insiders who arrange private meetings between hedge funds and officials, including lawmakers and their aides.
With markets moving sharply on actions in Washington, hedge funds and other big Wall Street players are willing to pay for access. News tips, combined with data and analysis, help steer firms to profitable investment decisions.
The meetings can be fishing expeditions, with clients sometimes leaving empty-handed. But if there’s news pending, these hedge funds are often among the first in line to hear.
New York-based brokerage firm JNK Securities has emerged as one of the most aggressive of the dozens of companies that escort clients around Capitol Hill. JNK Securities arranged the Dec. 8, 2009 health-care briefing and more than 200 similar sessions over the past three years.
Hedge-fund managers at Viking Global Investors and Karsch Capital Management were among investors who met privately that afternoon in a nondescript Capitol basement with senators whose support was crucial to passage.
Hedge funds last year met with lawmakers, including Rep. Carolyn Maloney (D.,N.Y.) on Capitol Hill.
The lawmakers said they would soon reach a deal that eliminated a proposed government-run insurance plan, according to people there.
The deal, announced after markets closed, helped buoy shares of such giant health insurers as Aetna Inc. and CignaCorp. through the end of the year: A government plan could have posed serious competition.
Viking and Karsch placed bullish bets on health-insurance stocks including Aetna during the fourth quarter of 2009, which they sold in the first quarter of 2010, according to regulatory records that don’t pinpoint trading dates. Shares of Aetna rose more than 6% within days of the announcement.
“Hedge funds and other investors have found that Washington can be a gold mine of market-moving information, easily gathered by those who are politically connected.”
Full article here-WSJ