POLITICS

This Hedge Fund Billionaire Is The Biggest Winner In Donald Trump's Victory

John Paulson, a Trump policy advisor, will finally get the payout he's been looking for.

11/11/2016 03:13 pm ET | Updated Nov 12, 2016
Bloomberg via Getty Images
Donald Trump held a "fireside chat" with billionaire hedge fund investor John Paulson at the Economic Club of New York in September.

WASHINGTON ― To the victor belong the spoils.

President-elect Donald Trump may have won election with the support of white working class and rural voters in northern states raging against the elites, but the biggest winner of all could end up being hedge fund billionaire John Paulson.

Paulson, head of Paulson & Co., was one of the very few big names on Wall Street to immediately back Trump after he secured the GOP nomination. The billionaire investor hosted Trump in June for a fundraiser at Le Cirque, a jackets-required midtown Manhattan haunt for the wealthy styled after a traveling French circus, where top donors (like Paulson) coughed up $250,000 to attend.

Now, Paulson is a top policy advisor to the incoming Trump administration and he is poised to cash out from the administration big league. Back when Fannie Mae and Freddie Mac were taken over by the federal government, their shares were declared value-less. But speculators bought up their stock at pennies on the dollar, with the hope of pressuring the government to recapitalize the housing lenders’ losses and release them back to the private market. If the shares could rise from just pennies to $30 or 40, the gains would be astronomical.

Paulson is one of the biggest investors in Fannie and Freddie stock and signs point to Trump going forward with their preferred policy. It will provide a windfall of hundreds of millions if not billions for billionaires like Paulson and Fairholme Capital Management’s Bruce Berkowitz, among others. Berkowitz backed Trump and donated $125,000 to his campaign.

Molly Riley / Reuters

Fannie and Freddie stock skyrocketed as soon as Trump was declared the election winner. They have since come down a bit.

Hedge fund billionaire investor Bill Ackman said on Friday that Fannie and Freddie will be resolved in the Trump administration’s first 12 months. “I was extremely bullish on Trump, believe it or not,” he said, speaking at the Dealbook conference.

Trump may yet find opposition from members of his own party in Congress if he does decide to side with Paulson and his other advisors on Fannie and Freddie. Sen. Bob Corker (R-Tenn.) promoted a bipartisan policy that would do away with the two government-sponsored housing lenders and replace them with a system relying on private loans. In the House, Rep. Jeb Hensarling (R-Texas) is advocate of eliminating Fannie and Freddie entirely within five years.

Paulson’s approach to what might be called political speculation has, in the past, pushed the bounds of traditional lobbying. He and allies retained an array of dark money groups, as well as some traditional lobbying firms, in an effort to move public perception around an issue, whether it was the sovereign debt of Argentina, Puerto Rican bonds or, in this case, U.S. housing finance policy.

The technique was the subject of a previous Huffington Post investigation, but despite Paulson’s efforts, neither the bets on Puerto Rico or Fannie Mae were paying off.

But his latest bet, placed on Donald Trump, might finally hit. Rather than funding groups who work to shift public opinion and pressure policymakers to make a decision that benefits him, he could instead cut out the middleman, and simply put in place staff that will do what Paulson needs.

“John Paulson made a big bet on Donald Trump’s campaign and it’s going to pay off in a big, big way,” said Michael Kink, president of the Strong Economy for All Coalition that sponsors the group Hedge Clippers, which investigates hedge fund influence in American politics.

Paulson & Co. did not immediately respond to a request for comment.

Paulson is perhaps best known for having bet against the U.S. subprime mortgage market in 2007, making about $4 billion. The ensuing global recession tanked economies around the world, sent unemployment skyrocketing and destabilized governments in Europe and North America.

Over the past few years, Paulson and other hedge fund investors have deployed an intense lobbying and public relations campaign in Washington over a variety of issues that would benefit their bottom line. This included heavy lobbying to make sure debts Puerto Rico owed to their hedge funds were first in line for full repayment and getting the federal government to release Fannie and Freddie.

Much of this lobbying has come through the DCI Group, a massive corporate lobbying group that cut its chops running so-called astroturf campaigns for the tobacco industry. Astroturf is when grassroots support or opposition to a policy is manufactured from the top down. This has involved the creation of front groups supposedly made up of citizens, but entirely funded by billionaire investors and controlled by lobby shops like DCI Group.

Through the DCI Group, Paulson and other big investors in Fannie and Freddie have hired economic experts, including former Clinton administration honcho Robert Shapiro, to pen papers favorable to their cause. They’ve paid money to civil rights groups to sign their name on to policies that would benefit the hedge funds.

This type of shadowy blending of private profit and the public interest was a centerpiece of Trump’s campaign, as he vowed to “drain the swamp” and put an end to corruption in Washington. 

But the Trump campaign has been filled with DCI Group alumni throughout the election. Former DCI Group lobbyist Doug Davenport was traveling with the Trump campaign as an advisor. Jim Murphy, former president of DCI Group, was hired as Trump’s political director in June, but departed with 18 days to go on the campaign.

Joining Paulson on the Trump transition team is another supporter of his favored Fannie and Freddie policy: former Ohio Secretary of State Kenneth Blackwell. The far-right politician was tapped to lead Trump’s domestic policy transition team. In 2014, while working for a nonprofit founded by investors in Fannie and Freddie stock, he penned many op-eds calling for the hedge fund-backed policy of recapitalization and release.

Trump has routinely sided with the hedge fund campaigns throughout the campaign. The Republican Party platform enacted at the Republican National Convention in Cleveland included support for the recapitalization and release of Fannie and Freddie. He also endorsed the hedge fund campaign to pressure Puerto Rico to pay back debts to them first.

His election victory is already paying off for Paulson. The billionaire’s hedge fund saw a massive gain of $463 million on Wednesday on the strength of its investments in pharmaceutical companies. That is only the beginning of the windfall Trump’s election provides to his billionaire donors.

Sign up for the HuffPost Must Reads newsletter. Each Sunday, we will bring you the best original reporting, longform writing and breaking news from The Huffington Post and around the web, plus behind-the-scenes looks at how it’s all made. Click here to sign up!

Also on HuffPost

Suggest a correction
Comments

CONVERSATIONS