Steyer’s Controversial Hedge Fund Could Thwart Senate Bid

Environmentalist billionaire’s career in finance offers Democratic rivals a populist line of attack

Tom Steyer
Tom Steyer / AP

Tom Steyer’s Tuesday column in the Huffington Post laying out his rationale for a potential U.S. Senate run had one glaring omission: He neglected to even mention his 20 years at a hedge fund whose shady business practices could weigh down his candidacy.

The billionaire environmentalist’s column made a passing reference to his "private sector" experience, but only discussed his and his wife’s founding of Beneficial State Bank, which recently teamed up with an environmental activist group to reward customers for flying carbon-spewing commercial airlines.

It made no mention of Farallon Capital Management, the hedge fund management firm that Steyer founded in 1987 and led until late 2012. Steyer, who has an estimated net worth of $1.6 billion, made the fortune that he has since poured into American elections at Farallon.

His conspicuous silence on this issue could be a sign that Steyer recognizes the potential liabilities of a career financing ventures that many progressives have dubbed socially or environmentally destructive.

While Steyer led Farallon, it was tied to illegal attempts to manipulate the Russian economy, an alleged $67 million Ponzi scheme, the construction of numerous coal-fired power plants, and an attempt to effectively drain a small Colorado town’s water supply.

Steyer’s firm so irked the left that it inspired a student divestment movement aimed at convincing university endowments to drop all of their holdings in Farallon funds. The movement began at Yale University, Steyer’s alma mater.

Farallon’s record would likely hurt him during a contest for the U.S. Senate seat currently held by retiring Sen. Barbara Boxer (D., Calif.). Steyer has signaled interest in running for the seat, and says he will make a decision soon.

Steyer is arguably the most politically prominent environmentalist in the country, having poured $74 million into Super PACs during the 2014 midterm election cycle. However, experts say that Steyer’s history at Farallon provides easy fodder for attack ads from candidates running to his left.

The phrase "hedge fund" is a political epithet in California, explained Hoover Institution fellow and Republican media consultant Bill Whalen.

If Steyer starts throwing punches at California attorney general Kamala Harris, who has declared her candidacy in the race, Whalen said, "the easiest punch to throw back would be how he made his money."

That narrative provides an easy target for left-wing critics of both Farallon’s specific investments in environmentally destructive ventures or ones that profited from neoliberal development in the third world, and of the American financial system more generally.

"The critique was partly just the model, not just that Farallon is a particularly awful hedge fund," Andrea Johnson, an activist in the Farallon divestment campaign, told the Washington Free Beaconin 2013. "That’s just the way the financial sector works: you tend to make a lot more money off of things that are bad for the environment."

Steyer may recognize the potential pitfalls of his career in finance. In an online Q&A on the website Reddit on Thursday, he distanced himself from the hedge fund he founded and ran for a quarter century.

"While my decades of investing taught me an awful lot, my conscience wouldn't let me stay any longer in the private sector," he wrote. "I want to be part of the solution."

Whalen noted that Steyer’s nascent political operation is already attempting to define him in ways that avoid any references to his work at Farallon in order "to minimize the wealth issue" and "sell him as a do-gooder."

A December poll commissioned by that operation—which has dubbed itself "Team Cincinnatus" in an apparent reference to the revered Roman statesman—purported to find significant support in California for a candidate with Steyer’s background.

The poll described his environmentalist work in detail, and asked respondents about their views on "a successful businessman who understands how the global 21st Century economy works." But the poll did not describe Steyer’s actual business background.

The structure of California’s "top two" primary system, in which the top two vote-getters of either party are placed on the general election ballot, could increase the intensity of attacks against Steyer, Democratic operative Kalee Kreider told National Journal.

"He and his family haven't faced the political colonoscopy of a statewide campaign in a jungle primary system which would be different than the scrutiny he has received in the past," Kreider said.

The top-two primary system could also result in a head-to-head contest between two Democrats, increasing the likelihood that attacks against Steyer from the left would continue right up until November.

Steyer’s conservative opponents seized on some Farallon-backed ventures to attack his efforts to elect Democrats around the country during the 2014 midterms.

One group, American Commitment, ran an advertisement calling Steyer one of the "biggest hypocrites in America."

"Tom Steyer made his fortune as an international coal financier while enticing investors with a tax-avoidance strategy featuring offshore shelters in the Caymans, Mauritius, and Singapore," said Phil Kerpen, the group’s president. "Now he’s using that fortune to support liberal Democrats who want to hike taxes and deny hardworking Americans access to the same affordable energy resources that made him rich."

Kerpen said in an email that he expects Steyer’s business background to be a liability if he decides to run for Senate.

"Steyer made billions running hedge funds in offshore tax havens and investing in dirty coal projects abroad. He's written his apologies, but it's still where the money that will fund his campaign came from," Kerpen said.

Some of Farallon’s controversial business practices involved projects in California, which could make them particularly appealing targets for political opponents.

In 1999, a Farallon-owned golf course opened in San Martin, Calif., a town south of San Jose. Its use permit from Santa Clara County required that it maintain at least 60 percent of the land for public use and that it take measures to protect the habitats of two threatened species on the land.

A 2002 review by the county’s planning commission found that it had reneged on both agreements. The club charged $250,000 for an annual membership to the course, and hadn’t built two agreed-upon ponds to accommodate the threatened species.

By 2005, Farallon was looking to sell its stake in the venture for "at least 20 percent and perhaps as much as 30 percent on their original investment," a return "likely worth millions," according to the Silicon Valley Business Journal.