The average returns for members of the U.S. House of Representatives outperform the market by 6 percentage points. And Senators? They do even better.
According to two studies, one of which was recently released by The Berkeley Electronic Press, the folks we elect to Congress are by and large outperforming hedge fund managers. Hedge fund managers! Representatives’ financial portfolios “earn statistically significant positive abnormal returns.” And Senators’ investments? They’re beating the market by 10 percent.
Those remarkable returns seem due to the non-public information that members of Congress are privy to, like pending business regulations.
What representatives are doing certainly smells of misconduct, but it’s difficult to prove that lawmakers are indeed breaking the law by using non-public information to boost their investments. And the SEC has largely determined that what Congressional members are doing isn’t insider trading.
According to the study’s authors, the sorts of profits that Congresspersons are making are “beyond the area that we would call normal good fortune.” To ward off misconduct, the authors call for new disclosure and monitoring requirements. But, then again, that would require new regulations to regulate those very same regulators.
But there are, in fact, two lawmakers who are trying to crack down on overly successful Congressional portfolios. Two Democratic members of Congress have introduced legislation called the STOCK Act (Stop Trading on Congressional Knowledge Act), which would prohibit legislators from buying or selling investments based on nonpublic information that they’ve obtained. But it’s unlikely that the bill, which has been proposed a number of times before, will pass.
So if you can’t get advice from your representative, there is one more option you have to boost your financial portfolio. Get elected to Congress.