Hedge fund managers tend to be secretive. Except for Anthony Scaramucci.
Scaramucci, an alumnus of Harvard Law School and Goldman Sachs, runs SkyBridge Capital, a “fund of funds” that places investors’ money in a variety of different hedge funds. He and his firm put on the SALT Conference in Las Vegas, the hedge fund industry’s most lavish annual public gathering. He is also a Fox Business Network pundit, frequent financial media talking head, and occasional Gawker target. Thanks in part to the fact that most major hedge fund managers keep their public utterances to a minimum, he is perhaps the most visible face of the hedge fund industry in America today.
Scaramucci, a fervent Republican political fundraiser, was the national finance co-chairman for Scott Walker’s presidential campaign. After Walker’s exit from the race, he signed on to raise Wall Street money for Jeb Bush. We sat down with him last week at the Hunt & Fish Club, the midtown restaurant that he co-owns and that we once called the “Worst Place in Manhattan,” for a conversation about out-of-touch Wall Street elitists, inequality in America, and staying off drugs.
Gawker: There’s been a lot of mainstream financial punditry over the past few years pointing out that hedge funds have had a relatively poor decade, charge high fees, often fail to beat cheap index funds, etc. How do you sell hedge funds? Why are they popular?
Anthony Scaramucci: There’s $3 trillion in the hedge fund space for a reason. The popular narrative on hedge funds in the media community and in the political community is that they’re negative, they underperform the stock market, and this sort of stuff. And yet, the counter-narrative is that there is $3 trillion of assets in the industry for a reason. So what is that reason? There’s a group of sophisticated asset allocators... that believe that there is a versatile skill set that a large group of hedge fund managers have—let’s call it the top 150 managers—that are able to use their skills, their qualitative and quantitative analytics, to create what’s called alpha, which is upside total return, by taking less measured risk...
In a screaming bull market, the last five years, SkyBridge has underperformed the bull market of the S&P 500. But in a year like this year, where the markets are having a rough year, we’re outperforming. So this is a downside volatility protection device... If you’re in what I would call the mass affluent, which are people that have $200,000 of pay or $1 million of net worth, an accredited investor, you should have some portion of your money—and I’m not talking about a lot of it, I’m talking about 5-15% of your money—in the hedge fund community.
Gawker: Is the hedge fund industry too big? Are there too many hedge funds?
Scaramucci: I do think there are probably—the last measurements I’ve seen are between nine and ten thousand hedge funds—so in some ways there’s a large number of hedge funds, and probably most of those hedge funds are not stellar. I don’t have the numbers, but probably 85% of the assets are with the top 300 fund managers, and I would say that’s not too big. I would say those people seem to have demonstrated very good performance over long periods of time... I think the industry will double over the next ten years. It goes from three to $6 trillion.
Gawker: Hedge fund managers, in the public mind, are a sort of stand in for unaccountable rich people. What do you think the general public doesn’t understand about hedge fund managers?
Scaramucci: Every industry, there are rogues and bad actors. There could be rogues and bad actors in journalism. Rogues and bad actors in medicine. Rogues and bad actors in the legal community. So I’m not here as an apologist for the entire community. I’m sure there are bad actors here in this industry like there are in every industry. However, I do think that the preponderance of the people in the industry are good actors. Skybridge has 46,000 clients. We have 75 hardworking people that work inside of SkyBridge. So when the industry is tarred and feathered or labeled as “do-no-gooders,” I think it’s unfair, because I can look to a lot of my friends, I can look to the charitable giving that we create at the SALT conference or through our foundation, I can look to so many different community projects that are granted in an anonymous way from some of the larger figures in our industry, and I don’t think that they’re getting a fair shake.
Again, what happens? A lot of money is being made. A lot of people don’t understand how a lot of money is being made. There’s a combination of fear related to that, envy, distrust that gets filtered into that. So one of the things I’ve really tried to do over the last five years is take a very opaque industry and make it a little more transparent. I’ve tried to—through the SALT conference, or a venue like Wall Street Week—by inviting people onto these shows or the conference, to offer some human side to their story. Rather than this two-dimensional dehumanized character, let’s offer some human side to the story. And what you find, Hamilton, is there are a lot of blue collar people who grew up, got themselves educated, and went to to work—[investment mogul] Leon Cooperman was the son of a plumber. Now he’s a multibillionaire. He’s giving all the money away, he took the Giving Pledge. So I just want there to be the counter-narrative out there. I don’t want to feel bad about the hard work. If my parents told me “work hard, go to school, eventually start your own business, try to be successful,” and if those things happened, I don’t think I need to be an apologist for working hard and being a very large taxpayer.
Gawker: In your experience, do hedge fund managers care about their public image, about the general public having a negative perception of them?
Scaramucci: I think they do, in general. When I first started my experiment, I think the PR departments or agencies [told hedge funds] “avoid the press, stay as far away from the press as possible, you’re gonna get mislabeled or misinterpreted.” My problem with that, as I’ve said to my colleagues, is you’re in a totally new world. You’re in a Gawker, Dealbreaker, Business Insider, Buzzfeed sort of a world... so my attitude on this stuff is if you don’t create your own narrative, whatever it may be, you’re making a big mistake, because you’re gonna get defined whether you like it or not.
Gawker: What kind of politics do people in the hedge fund industry tend to have, in your experience?
Scaramucci: I’m not a typical Republican. I am a Republican, I wear the Republican jersey, I’ve been a Republican my whole life. My dad was a Republican, which is interesting because he was in a union early on. The Republican party was very strong in the area that I grew up in. So I’m a loyalist. I’ve been a Mets fan my whole life... you don’t switch parties, right? The only time I crossed the aisle was to support Barack Obama in 2008. I had known him in law school, and I felt comfortable with him the first time that he ran. [Scaramucci was a top Mitt Romney fundraiser in 2012.] I’m a socially inclusive, fiscally responsible person. Notice I didn’t say “socially liberal and fiscally conservative,” because somebody spent a billion trillion dollars on making the word “liberal” hated by half the country. And then some other group spent a billion trillion dollars to make the word “conservative” hated by the other half of the country. So I don’t want to be labeled.
Gawker: A lot of people are concerned about money in politics. You’re on the inside of that process. Do you think the system we have for money in politics now is a healthy system?
Scaramucci: I’m not smart enough to diagnose whether it’s healthy or unhealthy. What I am here to tell you, and I can prove it empirically to you, is that money matters way less than people think. As an example, the president was against the Citizens United ruling, and we had to curb the spending, and this sort of stuff. In the 1950s we had “mutually assured destruction,” remember that from history? We now have in politics mutually assured deposits. It’s M.A.D. So what ends up happening is both parties have armed up with capital, and I can prove to you empirically that the money matters way less than the ideas. You can see candidates beating other candidates with less money and better ideas, better personalities... as long as you can get to a requisite number of capital to form your campaign—look at the way that you can project your ideas now. I can sit down with Gawker. I can put it on Tumblr. I can use Facebook, Twitter, Instagram. You can really economize your campaign and get a pretty powerful message out there.
Gawker: So when Donald Trump says that all the other candidates are owned by hedge fund managers...
Scaramucci: It’s just factually inaccurate. And he knows it’s factually inaccurate, but what Donald Trump is doing is a classic political thing. He’s identified two or three things that sound good. My cousin Sandra was calling my mom and said “I’m just so happy that Donald Trump is giving it to the hedge fund managers!” And then my mom said, “Wait a minute, my son Anthony’s in the hedge fund business!” And she said “Oh, I didn’t know that.” And P.S., she doesn’t even know what a hedge fund manager is.
And I love my cousin Sandra. I’m making the point that Donald Trump is scoring political points.
Gawker: We’re living in the most economically unequal time in America in almost 100 years. Do you think that Wall Street and the finance world have a special responsibility to help fix this issue, given the fact that they’ve reaped a lot of the gains that have driven this inequality?
Scaramucci: This is a gigantic problem. I’m not a sociologist, I’m not a political scientist, but I’m a fairly intuitive person. This is the most vexing problem of our times. Because at the end of the day, if we don’t come up with a fairer system—and frankly pay the middle and lower middle class more in terms of compensation—if we don’t figure that out, something really bad is gonna happen where the government is gonna mandate it. And what we find about governments is when they mandate things, the allocation of the capital, it gets very distorted and very harmful...
[The ratio of worker pay to CEO pay] is shameful. And if we don’t figure out a way to stop feeding at the trough of that, we’re gonna have a big problem in society. You don’t want the United States to become South America, where you have a super collection of rich people at the tippy-top of society, they are surrounded by barbed wire living in McMansions with security guards, and the rest of the society is suffering, and you’ve got a broken educational system and a broken government.
Now: how do you fix it? This is the great irony. I think that there are some good ideas on the left, but there are a lot of good ideas on the right of how to fix it. I don’t think any party has a full monopoly on the ideas of how to fix this. So for me, I’m more of an empiricist. I’m focused on right or wrong, as opposed to left or right. So one of the things I’m super worried about, and this gets me in trouble with some of the teachers, is that if the system is broken, where if you tell me the ZIP code of somebody I can tell you if they get a good education, and you look at the per-unit cost of what we’re spending on these students—well I tell you, there’s a monopoly or an oligopoly [in education] that has to be deregulated or broken, the same way we did the telecommunications industry, the same way we did the airlines industry. You’re not gonna unleash the innovation unless you create more competition. People get upset with me for that. I have a lot of friends of mine that are teachers, that are members of the union. And I make the argument that, “Listen, I’m in a union.” I’m in the Screen Actors Guild. My dad was in a union... I’m not anti-union. All I’m for is more accountability and more student efficacy.
The great irony of executive compensation is, if you pay your employees more, you’re gonna create more demand for your goods and services! Which is gonna lead to more executive compensation than if you pay your employees less and try to take all the cream off of the top.
Gawker: Do you think the inequality issue is something on the radar of a lot of people in your industry?
Scaramucci: I would say yes and no. There’s a large group of people in the industry who’ve got the ostrich mentality, “let me go and bury my head in the sand, let me stay away from these issues, I don’t want to stick my neck out because it’s gonna get shot at, why do I need that aggravation?” Then you’ve got another group of us that are like, “wait a minute, I’m a very big beneficiary. I’m a byproduct of the middle class.”
Gawker: What would you say to a high school kid from a poor area who doesn’t want to be poor when they grow up? What advice would you give them?
Scaramucci: Number one thing is, life is unfair. So the first thing you gotta do is end the bitterness and and the disentitlement syndrome, where you’re like “I’m behind the eight ball so therefore I can’t get out.”
Second thing I would so is I would really try to seek help. There are mentoring communities, there are NGOs available that can help broaden your ability.
The third thing—and probably I should have said it first—you’ve gotta stay off drugs. The temptation is gonna be there for you to buy and sell them. The temptation is gonna be there for you to use them. But what we know is that once that circuit starts, that’s a severe compounding negative feedback loop that leads to a disaster. So those three things are super important. I have worked in the Big Brother program in New York since 1991, so this is my 24th year. And I’ll look you straight in the face and tell you I have one or two success stories, and I have mostly kids hitting the screen, not able or willing to break out of the sequence of events that are in their community.
Gawker: A lot of people think Wall Street is out of touch with the lives and concerns of regular Americans. Do you think that’s a fair reading?
Scaramucci: I do think that’s fair. I’m gonna tell you a quick story. In 2010, at the Newseum, CNBC did a town hall meeting with President Obama... I asked him, when are you going to stop whacking Wall Street like a piñata? And the president came back at me with some remarks about how he felt about Wall Street. We can agree to disagree about it. But the next day, I got lit up on social media sites, where literally I was like Sarah Palin for four days. There were aggressive liberal screeds, and you probably shouldn’t read these things—trust me, I’ve learned that five years later. But one thing that I read that really got me, stabbed me right in the chest, was that I was an out of touch Wall Street elitist. I’m telling you this story because I said, “I’m an out of touch Wall Street elitist? My god, I grew up in a middle class family where my parents didn’t go to college, how could I be an out of touch Wall Street elitist?” And then it dawned on me that the person was right: that I am actually a completely out of touch Wall Street elitist. And I said to some of my family members that I have to get back in touch with my roots, that I have to get back in touch with the struggle that is going on in many of these middle class families or lower middle class communities. Because you go to Tufts, you go to Harvard Law School, you go to Goldman Sachs, you build two reasonably successful hedge fund businesses on Wall Street, you start to insulate yourself in a way where you’re sitting at the fancy pants Hunt & Fish Club and you’re not at a local diner in Northeastern Pennsylvania in the town of Wilkes-Barre or Scranton, where you’re feeling the vibe of the economic struggle. So I 100% believe that. By the way, I would say I’m more in touch today than I was five years ago, but I’m still relatively out of touch.
Gawker: Scott Walker. What went wrong?
Scaramucci: Some people on the left totally misinterpret Scott. Scott got a lot of Democrats and a lot of independents to vote for him, otherwise he never could have won in a blue state like Wisconsin. What Scott was basically saying is he wanted to go big, and have big, bold reforms in that state. And, listen—it was very successful in Wisconsin. But you have a political narrative going on in the country right now where I think there was a confluence of events where a guy like Scott Walker, the great thing about him is he’s a public servant. So he’s looking at the landscape saying “Okay, if I don’t see a clear path for me, I am the governor of the state of Wisconsin, let me focus on that. I’m 47 years old, I’ve got a lot of close personal friendships as a result of getting in the race.” And I think he manned up and exemplified some level of leadership by saying—I made a joke the other day that there are more Republican candidates for president at 1% than there are in the 1%. Okay? So his point is, let’s try to get it down to a more manageable number, so it’s not as diffuse as this. And I give him a lot of credit for that.
[Photo via Bloomberg/ Getty]