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Hedge fund and private equity executives have become the political fundraisers’ new best friends, writes Alex Barker in the FT.

People working at private investment companies donated about $2.5m to US presidential candidates in the first quarter of this year, according to the Center for Responsive Politics. That represents a ninefold increase on the first quarter of 2003, the last comparable election period.

This is a small part of the some $150m raised by presidential candidates this year, but motivated by a mix of naked self-interest and appeals to civic duty, investment companies are building their presence in Washington to better reflect their growing economic power.

Rudy Giuliani recently signed up Paul Singer, New York-based founder of Elliot Associates, a hedge fund, to be the finance chairman for his campaign. Staff at Elliot this year gave more than $150,000 to the former New York mayor who chairs Leeds Equity, a private equity group. Republican Mitt Romney received almost $100,000 from staff at Bain Capital, the private equity group that the former governor of Massachusetts founded.

Private investment companies account for almost 10 per cent of the money Christopher Dodd, chair of the Senate banking committee, raised in the first quarter. Staff at SAC Capital, the hedge fund run by Steven Cohen, contributed more than $209,400 to Mr Dodd’s campaign. This represents by far the biggest political donation given by this renowned but publicity-shy group, which accounts for some 3 per cent of daily trading on the New York Stock Exchange.

What has inspired this new-found generosity?

First, growing prosperity and an exciting contest; Second, a number of candidates have either represented constituencies where many such companies are based or have worked in the industry themselves; Third, concern about a political backlash.

Popular discontent in the US is far less evident than in Europe, but moves by private equity groups into more politically sensitive and regulated areas - such as student loans, carmakers and big utility groups - are raising the stakes. At the same time, Congress has begun to ask pointed questions about how the industry operates and pays tax. Fears are growing that the sector is “going to get skewered by the pols”, in the words of one leading private equity executive. “We are too convenient a target,” he says. “It is great politics for both parties.”