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A baron of finance scolds his fellow 1 percenters

Rick Newman
Columnist

America’s wealthiest citizens know they’re unpopular. “When you listen to the presidential candidates talking about what hedge funds and private equity does, you’d think we’re committing crimes,” David Rubenstein, co-chairman of the Carlyle Group, said to fellow financiers at a conference in Las Vegas on Wednesday. “Nobody in the campaign says anything about the hedge fund industry that’s good.”

Rubenstein wasn’t exactly speaking to the choir — he was addressing one of the largest gatherings of hedge fund executives in the country, the annual SkyBridge Alternatives Conference — aka SALT. Ordinarily, hedge fund honchos come to SALT to network, make deals, get trading ideas and hear from top policymakers. But this year there’s an elephant in the room that’s impossible to ignore.

The elephant is a presidential campaign that centers on bashing bankers, capitalists and the wealthiest Americans. Republican presidential front-runner Donald Trump has said hedge fund managers “are getting away with murder,” on account of low tax rates they pay on gargantuan profits. Democratic candidate Bernie Sanders calls repeatedly for breaking up the big banks, and the popularity of that campaign riff has drawn his rival Hillary Clinton further to the left, leading her to denounce free trade deals and propose her own modest effort to rein in Wall Street.

Hedge funds and other wealthy investors are used to criticism, but Rubenstein, who worked in the Jimmy Carter administration and co-founded Carlyle in 1987, thinks it’s time to do more than just shrug it of. “This industry has been under attack,” he told a ballroom full of investors. “All of us have an obligation to try to explain to the public and to the government what the hedge fund industry and the private-equity industry does that is useful.”

Here’s the list: These alternative investing firms — sometimes described as the “shadow banking” system — help investors earn returns better than the scant interest paid on safe securities such as corporate bonds and CDs. Many of those investors are wealthy themselves, but a lot of money managed by alternative firms belongs to pension funds that target annual rates of return of 8% or so — and are struggling to earn it these days. So in that regard, hedge funds and PE firms are helping protect the retirement funds of teachers, cops, firefighters and other workers lucky enough to have a pension.

Jobs often disappear when hedge funds or PE firms take a stake in a company, since one thing they do is impose disciplined management focused on improving efficiency. Such investors point out that they often get involved with troubled companies that might go bust without professional intervention. So the counter-argument to public criticism of the job-killing hedge funds is they save companies and jobs that might otherwise disappear. Even if there’s truth to it, that’s a tough sell, as Mitt Romney, a co-founder of Bain Capital, discovered when his own fellow Republicans bashed him as a job-killing plutocrat during the 2012 presidential campaign.

Rubenstein is worth $2.4 billion, according to Forbes, and he has pledged to give away most of his money. He also urged his colleagues to be generous with their wealth. “Try to focus on giving something back to society,” he said. “Do more than make money and sit in your office. Think about what you’re doing to make your community and your country a better place.” That’s not why anybody comes to SALT, but maybe they’ll think about it once they’re home.

Rick Newman’s latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman .