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Playing The Market With Campaign Cash


Government: CAMPAIGN FINANCE

PLAYING THE MARKET WITH CAMPAIGN CASH

Candidates are investing--with varying degrees of success

When Jeffrey J. Parker started investing his company's excess cash in the stock market back in June of 1996, he didn't even tell the boss. Working with a discount broker, Parker paid $58,000 for shares in a software company. Soon, he bought shares in other tech companies, then exotic equity derivatives, until he had nearly $240,000 tied up. When he sold everything 14 months later, the boss was pleased: Trading profits totaled $143,000--a 60% gain.

Parker's market dabbling wouldn't be so unusual except that his employer is Representative Bob Inglis (R-S.C.), who is trying to unseat Democratic Senator Ernest F. Hollings. And the company is Inglis' campaign committee. Its capital: campaign contributions.

Inglis isn't the only candidate to use the stock market to fatten a campaign chest. The practice isn't illegal, and it paid off big for a handful of politicians as the bull market was roaring ahead. It certainly beats rubber-chicken dinners.CONFLICTS. On the other hand, there's the chance--especially in today's volatile market--of losing those contributions. Representative Tom Campbell (R-Calif.) lost almost one-third of the money he invested in equity mutual funds over the past 18 months. Then there are ethical hazards--the potential for conflict of interest. If companies they invest in seek special favors, or legislation threatens their bottom lines, lawmakers might be tempted to vote their portfolios. Investing campaign funds "increases the incestuous relationship between deep-pocketed special interests and politicians," says Charles Lewis, executive director of the nonpartisan Center for Public Integrity.

To avoid such conflicts, Inglis instructed Parker not to tell him which companies he had invested in. Parker, the campaign's treasurer, bought 9,000 shares of Datastream Systems Inc., based in Greenville, S.C., just before it posted quarterly earnings that beat analysts' projections and just prior to several new-product announcements. The shares zoomed, allowing Parker to make a quick $40,750. Inglis had advised Datastream when it incorporated in 1986. But both he and Parker deny they knew about the positive news in advance. "Seeing as how I had no idea who we were invested in, there was never any conflict of interest," says Inglis.

Democratic pols can make money in the stock market, too. Representative Peter Deutsch (D-Fla.) entrusted $600,000 in excess campaign cash to First Long Island Investors Inc., which put the money into such large-caps as Johnson & Johnson, Intel, and Microsoft. It gained over 40%, or about $240,000, over the 18 months ending last June. Deutsch didn't choose which shares to buy, but he received reports that listed each of the stocks and their performance. In July, he placed his funds with a less aggressive money manager that seeks to match rather than beat market indexes. Playing the market "has made my job easier," says Deutsch. "I've spent less time fund-raising and more time being a congressman."BAD BETS. Not all pols have such luck. Campbell put $200,000 into a global small-cap equity mutual fund managed by Robertson Stephens Investment Management. When he lost $32,000 in nine months, Campbell moved most of his money to four other funds that invest in small and midsize companies, but they too lost value. By September, when he cashed out completely, his losses totaled $63,000. Campbell, who represents Silicon Valley, says putting money into equities isn't a bad move but concedes his choice of funds was unwise. Seeking advice from an investment counselor "is one of the things I might consider next time," he says.

Interestingly, the lawmakers willing to risk their hard-won campaign dollars were all House members, who need ready access to their cash every two years. Senators face voters only once every six years. Yet they appear to be more financially conservative. Senator Kay Bailey Hutchison (R-Tex.) is typical. She is seeking reelection in 2000 and so far has invested $4.2 million in Treasury notes with maturities of three to five years and interest rates averaging around 6%. "We're not in the business of making vast amounts of money off of contributors, who expect [their money] to be used in her campaigns," says campaign treasurer Kenneth W. Anderson Jr.

Like ordinary investors, lawmakers must choose investments that match their ability to stomach risk. But the downside can be greater than losing a nest egg--pols could alienate contributors. And those whose investments raise ethical questions risk losing the trust of voters--and possibly their jobs.By Paula Dwyer and Amy Borrus in WashingtonReturn to top


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