Executives Alliance Capital Management of New York, T. Rowe Price Associates of Baltimore and other mutual fund companies must be rooting for a George W. Bush victory in November's presidential election if they believe what Prudential Securities analyst Charles A. Gabriel Jr. has to say.
In a research paper published July 4, Gabriel wrote that stocks of "asset-gatherers" like Alliance Capital, T. Rowe Price, Goldman Sachs of New York and State Street of Boston will benefit most if Bush wins the election.
This political benefit hinges on Bush's campaign promise that he will try to privatize part of Social Security, Gabriel said.
"I believe the most important legislation that might be boosted by a Bush presidency would involve market-based Social Security reform, on which Bush has boldly decided to base his campaign and seek a mandate," Gabriel said.
Gabriel said that as much as 16 percent of the 12.4 percent payroll tax that is currently being paid into the Social Security fund would be diverted to private accounts under a Bush administration. That would send money flowing into asset management companies and increase their value as acquisition targets, Gabriel said.
"T. Rowe and Alliance might garner a healthy share of additional monies to manage as initially $5 to $6 billion in monthly payroll-tax revenues stream into private accounts, in addition to seeing its strategic merger value rise as funds' management firms themselves gain luster," Gabriel said. Vice President Al Gore hopes to save Social Security in part by creating private, tax-free savings accounts in which personal contributions would be matched with government tax credits. Gabriel said Gore's plan is "augmenting rather than reforming the existing defined-benefit structure of Social Security."
Goldman Sachs would benefit from the Bush plan because if more people are active in the stock market, there will be higher trading volumes, more initial public offerings and higher equity prices, Gabriel said. Goldman Sachs and its employees have been major contributors to the campaigns and political action committees of both Bush and Gore, according to the Center for Responsive Politics in Washington, D.C. Goldman Sachs employees have given $106,149 to Bush and $84,750 to Gore through Aug. 3, according to Center statistics.
State Street would be a major beneficiary of a Bush victory as a custodian for the mutual fund industry, said Gabriel.
"State Street's position as the premier custodian to the mutual fund industry should make it an even purer play on Social Security reform," Gabriel said. Marshall N. Carter, who recently retired as chairman of State Street, might even work with the Bush administration to pass any Social Security reform through Congress, he said.
The biggest boon to the asset management industry would be a general increase in stock ownership across the country, which Gabriel said could increase from 50 percent to 80 percent. He did not specify in what time period.
"This might transform American politics, making it even more protective of equity investments [and companies that are so-called asset gatherers] going forward," Gabriel said.