The private equity industry has spent more money on the 2020 elections than ever before, and no politician has benefitted more than North Carolina’s Republican senator Thom Tillis, whose race against Democratic challenger Cal Cunningham, a dead heat, could determine which party controls the upper chamber.
Keeping Republicans in control of the Senate would benefit the industry in many ways, including helping their billionaire executives hold onto lucrative tax breaks, but they also have reason to try and keep Tillis around in particular. Tillis has been a leader in helping to deliver regulatory benefits for the industry, including his repeated efforts to secure a new rule that weakens the position of smaller American investors to the benefit of big corporations and private equity firms.
In 2018, Tillis introduced legislation to direct the Securities and Exchange Commission (SEC) to expand the definition of accredited investors so that private funds can raise money from less-wealthy investors. The accredited investor definition is used to determine who is allowed to participate in investments that are not available to the general public, including offers by private equity firms, hedge funds, and venture funds. For years, accredited investors were required to have a net worth of at least $1 million, but Tillis wanted to expand that to include people with certain educational backgrounds, job experience, and a lower net worth.
The SEC kicked off a rulemaking to expand the definition in December 2019 and finalized it earlier this year after Tillis and a few of his Republican colleagues filed a comment to the agency’s chair, Jay Clayton, asking him to be even more expansive with their changes to the definition. When the SEC voted to change the definition, Tillis put out a statement applauding the effort and saying that he “has led Congressional efforts to amend the definition of accredited investor.”
The definition now allows for holders of entry-level stockbroker’s licenses, “knowledgeable employees” of nonpublic firms, and other new categories of investors to participate in financial offerings like leveraged buyouts and angel funds that are far less transparent than those offered to the general public.
In his letter, Tillis calls the change “a win for the American people,” but financial reform advocates see the SEC’s move as an industry victory that helps giant firms exploit small investors.
“The SEC did the bidding of private equity in particular by enlarging the pool of money from which this industry, which already has trillions on hand, can draw,” said Carter Dougherty, communications director with consumer group Americans for Financial Reform. “The result will surely be that private equity firms will prey on less-informed investors, who will not have the benefit of information available in public securities markets, and will pay higher fees for mediocre returns on their money.”
These investments and fees will benefit billionaire fund managers, several of whom have spent tens of millions of dollars this election cycle to support Tillis and other vulnerable Republicans.
The CEO of private equity behemoth Blackstone Group, Stephen Schwarzman, who is worth $18.1 billion, has donated $20 million since January 2019 to the Senate Leadership Fund, a super PAC affiliated with Republican Senate Majority Leader Mitch McConnell (Ky.).
Tillis has been the biggest beneficiary of Senate Leadership Fund support this election cycle. The super PAC has spent $47 million on television ads and other communications opposing his opponent Cal Cunningham as of Oct. 30. The group’s ads have attacked Cunningham over flirtatious texts he sent to a woman who is not his wife.
Another top donor to Senate Leadership Fund is Ken Griffin, the founder and CEO of investment firm Citadel, which could benefit from an expanded pool of potential investors. Griffin gave the super PAC $25 million this cycle.
According to the Wall Street Journal, Blackstone sent letters to the SEC praising their proposal to expand the accredited investor definition and urging it to go further.
Blackstone Group is also Tillis’ top campaign donor this election cycle, according to a tally by the Center for Responsive Politics, with many of the firm’s executives and employees chipping in the legal maximum of $5,600 for a combined total of $67,611, including Schwarzman, Global Head of Private Equity Joseph Baratta, and Senior Managing Director Prakash Melwani. Securities and investments is Tillis’ top donor industry, with investment firms like Elliot Management, Apollo Global Management, and Capital Group all among his top 20 donors.
The North Carolina Senate race is one of a handful that will determine which party controls the Senate, along with races in Maine, Colorado, and Arizona. Most polls have Tillis trailing his Democratic opponent by a few percentage points, with the race having tightened dramatically in the past two weeks.
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