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Hillary Clinton and Barack Obama want to kill the entire public hedge fund industry. It's easy for them to take aim at wealthy hedge funds managers because it looks good to voters. However, what they don't seem to realize is that they're pushing a struggling economy closer to the brink.

The recent Iowa and New Hampshire caucuses have reminded stock market participants that Hillary or Barack will likely be the next U.S. President (check out the smart money at intrade.com), and they're both taking aim at the heads of publicly traded hedge funds. For example, Fortress Investment Group (NYSE:FIG) and The Blackstone Group (NYSE:BX) are two publicly traded hedge fund firms whose stock prices essentially fell off a cliff following the recent presidential caucuses. Why? Carried Interest Tax Reform.

Carried Interest is a portion of hedge fund managers' income, and it is currently taxed at a special lower tax rate. Both Hillary and Barack want to raise these taxes. However, raising the tax will do a lot more than simply hitting the pocketbooks of a few wealthy hedge fund managers. In fact, it could destroy an entire market industry.

Historically, Hedge Funds were only available to the extremely wealthy. However, the fortune of the "little guy" seemed to be improving in early 2007 when firms like Fortress and Blackstone IPO'd and became available to everyone. Unfortunately, the credit market woes and the shakeup for several high profile quantitative hedge funds have caused the entire industry to suffer.

The next shoe to drop may be Carried Interest Tax Reform. If the Carried Interest Tax is increased it will hurt the entire industry by decreasing profits and incentives for publicly traded hedge funds and by encouraging other hedge funds to stay private (i.e. they'll only be available to the extremely wealthy).

The U.S. market has been struggling in recent months, and the high cost of anti-hedge fund campaign platforms could help push us over the edge. No one has a crystal ball, and only time will tell what comes next (both FIG and BX are starting to gain back some of their recent losses due to a BX acquisition). As we approach the election, it will be very interesting to watch the stock prices of firms like Blackstone (BX) and Fortress (FIG).

Source: Clinton and Obama: Hedge Fund Killers