News Release

Will Infrastructure Investment be Syphoned by Hedge Funds?

A top USA Today headline reads: “Joe Biden wants to spend $2 trillion on infrastructure and jobs.”

LYNN PARRAMORE, lynn@lynnparramore.com@INETeconomics
Parramore is senior research analyst for the Institute for New Economic Thinking and recently wrote a piece key to understanding how President Joe Biden’s $2 trillion infrastructure plan could be thwarted by hedge fund predators: “Meet the ‘New Koch Brothers’ — the Hedge Fund Activists Wrecking America’s Green New Deal.”

She explains how “billionaire financiers have made sure the companies the government must partner with to achieve critical goals like clean energy are focused on further enriching predatory hedge fund executives.” According to Parramore, these predators “force companies to play Wall Street casino games with their resources instead of investing in R&D and attracting and retaining the best talent.”

“Putting infrastructure plans in place requires the government to partner with companies that have the deep know-how and the substantial resources to develop these complicated and cutting-edge technologies,” writes Parramore. “The problem is,” these hedge fund “activists” usually “aren’t interested in companies being the best at what they do, or doing anything, really, except handing over money to shareholders. A favorite tactic is to force companies to use their cash, or even borrow it, to buy back outstanding shares of their own stock.

“The playbook of today’s hedge fund” manipulators, Parramore notes, “looks like this: Buy a wad of shares of a company on the stock market. Then, line up the proxy votes of the managers of funds who have hedgies manage pieces of their portfolio. Next, send a letter to the CEO of a target company demanding that he or she get busy pumping up the stock price. Hedge funds with deep pockets will spend millions making this happen — remember, their money comes from rich people or institutional investors like pensions and mutual funds who are seeking high yields. Occasionally hedgies will use their own money — those whose ‘war chests’ have come from previous raids.”

Parramore notes that “companies partnering with the government for infrastructure projects should be protected from hedge fund predators, prevented from doing stock buybacks, and incentivized for building up capabilities and new technologies and training employees rather than playing stock market games.”