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The presidential candidate one newspaper has labeled "Richie Rich in bib overalls" is a remarkably sophisticated investor.
Former Sen. John Edwards has exploited the middle of his famous three H's -- his $400 haircuts, his hedge-fund consulting and his new 28,000-square-foot home -- to spread his fortune around a maze of trusts and accounts that total something between $29.5 million (his campaign's estimate) and $62 million (the high end of ranges described in his federal disclosure).
Edwards' sprawling, 48-page campaign-finance disclosure for 2006 (.pdf file) reveals substantial investments in limited partnerships, subprime-mortgage lenders and an offshore hedge fund. The latter two run contrary to stands he has taken as a candidate.
Man of the people -- and profits
Edwards is running as a populist, but profits on his stock investments alone would distance the candidate from the cause.Edwards has raked in hundreds of thousands of dollars in capital gains from stock in Apple (AAPL, news, msgs), BP PLC (BP, news, msgs), Burlington Resources, Medtronic (MDT, news, msgs) and Schlumberger (SLB, news, msgs), the chief rival to Halliburton (HAL, news, msgs), where Vice President Dick Cheney was once CEO.
Edwards generated most of his wealth as a trial lawyer, but last year his principal employment was as a senior adviser to Fortress Investment (FIG, news, msgs), a large hedge-fund operator, for which he received $479,512. His and his wife's investment in Fortress Investment Fund III (Fund D) totaled between $1 million and $5 million.
Fortress, based in New York, owns subprime lender Nationstar Mortgage, formerly Centex Home Equity. The Dallas company calls itself "one of the nation's leading mortgage lenders offering nonprime mortgages and home-equity loans."
As a presidential candidate, Edwards has lashed out at subprime lenders, saying they are "pulling a fast one on hardworking homeowners."
Fortress Investment Fund III is based in the Cayman Islands. Edwards' campaign said he opposes offshore tax havens and, "as president, he will end them."
A mighty Fortress
Edwards has said he worked for Fortress to learn more about financial markets and their link to poverty. He is the former director of the Center on Poverty, Work and Opportunity at the University of North Carolina in Chapel Hill.He evidently learned a good deal because his portfolio is aggressive and slanted toward Wall Street's most complex deals. He has accounts, including a trust for his children, with Atlantic Trust Private Wealth Management and Oak Hill Capital Partners Fund. Two investments, Drawbridge Global Macro Fund and Drawbridge Special Opportunities Fund, are Fortress hedge funds that specialize in what his disclosure form characterizes as "global markets, strategies and instruments."
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Fortress and a private-equity firm last month agreed to acquire Penn National Gaming (PENN, news, msgs), the third-largest gambling concern in the United States.
The Financial Times reported: "If the deal is completed, some of Mr. Edwards' money could be put to work in a controversial industry that he wants to regulate more closely. When a senator, Mr. Edwards co-sponsored a bill to ban gambling on amateur sports."
Penn does not operate in Nevada, which is the only state that allows betting on amateur sports.
Edwards has at least $7.5 million invested with Fortress and its hedge funds. Fortress is the second-largest shareholder of Odyssey Marine Exploration (OMEX, news, msgs), which recently recovered 500,000 silver coins from a 300-year-old shipwreck.
According to Federal Election Commission records, Fortress employed more of Edwards' campaign donors than any other company, with combined contributions of nearly $125,000 in the first quarter. Fortress also hosted a fundraiser for Edwards in March that garnered him more than $1 million.
Edwards has said he supports a bill pending in the Senate that would disallow hedge funds that go public from treating their profits as capital gains, which are taxed at a much lower rate.
Trial lawyers have been Edwards' biggest supporters, accounting for nearly one-third of the $23.1 million he has raised, as of July 15. Fortress contributions totaled $187,850.
Is he liberal? He's not conservative
Edwards' investments differ markedly from those of such rivals as Democrat Barack Obama and Republican Rudolph Giuliani. They are conservative investors. Edwards is the opposite.While he owns several million dollars' worth of tax-free North Carolina bonds, much more was invested in hedge and mutual funds.
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Many of the mutual funds are leaders of their groups, including American Funds EuroPacific Growth (AEPGX), Third Avenue Value (TAVFX), Vanguard Wellington (VWELX), Davis New York Venture (NYVTX) and Dodge & Cox International Stock (DODFX).
In his 401(k) plan with Kirby & Holt, a personal-injury law firm he founded (as Edwards & Kirby), Edwards reported interests in a host of individual securities, ranging from an energy limited partnership to bonds and short-term debt of Detroit's Big Three automakers.
After Edwards' $400 haircuts became public knowledge, he said he had reimbursed his campaign for them. They are the least of his luxuries, however. His new $5 million home is on 102 acres.
That's one-sixteenth the size of the ranch of another well-coiffed Southern aristocrat, President Bush, but both parcels are valued about the same.
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Whether both will eventually become legacies of presidents of the United States will be not be settled by their barbers or their brokers. And with Edwards a distant third in fundraising behind Sen. Hillary Rodham Clinton and Obama, he's a long shot to find out.
But he can certainly fall back on his investments. They include many of the things he rails against, and those investments are good.
At the time of publication, Tim Middleton owned the following security mentioned in this article: Dodge & Cox International Stock Fund.
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