by Kleinbard

Alternative index funds are hot. While traditional index funds are tied to market-capitalization, or total-stock market value, alternative index (or, smart beta) funds have elected to weigh portfolios on other factors like volatility or global sales. In order to compete in the alternative market, investment firms have been exploring unique indexing methodologies. The latest? Politics. On Thursday, the Federal Election Commission (the “FEC”) released an advisory opinion sanctioning the creation of an index based on contributions to a particular political party.

Point Bridge Capital (“PBC”), a registered investment advisory firm, has created the political index by gathering public contribution and expenditure data from companies and their employees. PBC intends to create an exchange traded fund (“ETF”) that tracks index performance, and license the index to other companies to use in similar investment-related securities.

The question at the heart of the opinion was whether PBC’s proposed use of contribution data violated the Federal Election Campaign Act’s prohibition against the sale and use of FEC reports for political solicitation or commercial purposes.[i] The FEC determined that the Act was designed to prevent individual records from being exploited for such purposes, and as such, there was no compliance issue when the contribution data was aggregated in the PBC index and related ETF. The FEC also determined that PBC’s proposal did not qualify as an independent expenditure, and the company would not be required to file any reports.

Campaign finance data is revealing – it shows more than a person or corporation’s interest in supporting a particular party or candidate, it shows which issues drive that person or corporation’s social action. The FEC’s opinion opens the door for investment firms to utilize contribution data to structure unique alternative offerings. It also creates an opportunity for political entrepreneurs to use aggregated campaign spending data to create advocacy tools to advance political causes. Until the FEC determines that the commercial use of campaign data has crossed some yet-to-be-defined threshold, politics is fair game.

For questions or more information please contact Liz Roggio at or at 267.443.4107.

[i] 52 U.S.C. § 30111(a)(4)