Since 2005, If the hedge fund boom has had a capital, it is Greenwich, a ritzy suburb of mansions and gated estates about 30 miles from Manhattan. More than 100 hedge funds collectively manage more than $350 billion — about one-tenth of the total invested in hedge funds worldwide. Greenwich is home to top funds including AQR Capital, Lone Pine Capital and Tudor Investments — all three of which ranked in the top 10 on Institutional Investor’s list of the world’s top 100 hedge funds.
Hedge funds would seem to be a business in which location doesn’t matter. Buy and sell orders can be executed from a beachfront villa in Costa Rica, and the laws of economics dictate that businesses seek out the lowest-cost destinations. Yet the hedge fund industry exhibits one of the most vivid examples of concentration in today’s economy — and it concentrates in the world’s most expensive places: Manhattan, Greenwich and London.
Most people who start hedge funds don’t wander far from familiar turf. This is partly because traders are loath to give up hard-won NY co-ops and private school spots, and partly because they are superstitious creatures of habit.
The hedge fund industry got started in Greenwich when the pioneers decided they no longer needed to deal with the hassle of a NYC commute, and offices could be located minutes from their estates. Connecticut originally offered a much better tax structure than NYC, too. There’s no functional operating difference between operating a fund in Greenwich, Manhattan or London.
The location of a hedge fund is largely determined by:
- Access to the best talent
- Tax and business investment incentives
- Proximity to key executives’ homes
Why should Palm Beach County (“PBC”) be optimistic about accelerating the trend of hedge funds and private equity firms to locate all or part of their offices to this beautiful area? Two of the above factors are working in PBC’s favor — tax advantages and proximity to key executives’ homes. As shown below, tax advantages are significant, and many hedge fund executives maintain a home in the PBC area.
Access to the most brilliant talent is the key hurdle for Palm Beach. Those who have the smartest and most-motivated employees win. To be successful and stay at the leading edge, a hedge fund manager needs super-smart and very hard- working employees to conduct research, trade the markets, execute investments, ensure regulatory compliance and handle back-office and financial reporting. Even for administrative and executive assistants, their hiring preference includes previous experience at a top financial firm.
Advanced programmers and quants are required to build sophisticated financial models and trading systems (think MIT)
Hedge funds are hungry for access to the latest technologies, information sources, unique strategies and perspectives of market dislocations to achieve a hyper-competitive edge.
A fund manager is always thinking of ideas to boost ROI performance and market-leading results, which boost the AUM. One obvious idea is to move to a location with a better tax structure (PBC) — particularly if the fund is shedding outside investors to become a private family fund. These trends point to Palm Beach.
Connecticut is losing business due to a less-attractive tax structure than just a few years ago. GE recently announced its move to Boston, Massachusetts, leaving the Connecticut suburbs to get closer to a robust talent pool who prefer an urban lifestyle — many of whom come out of the top universities of the Boston area. Companies are moving to meet the new talent — and for GE, it’s not in Connecticut.
For hedge funds, Connecticut taxes are two to three times lower than in New York — so they continue to have the edge over New York. But neither location beats PBC.
Written by Stephen Candland — Head of Talent Acquisition for the Angela Mortimer Group.