How important is the location of a hedge fund?
First off : hello everyone in this forum/on wallstreetoasis.
I'm here to read up on things in Finance especially in Hedge Funds because I'm very interested in it generally, so I'm not an expert or anything.
So now to the Topic.
I've read alot of books lately of Hedge Fund Managers and about the hedge fund industry but I didn't get an answer to some questions.
Now what always stay in my mind is : why is almost every Hedge Fund located in CT , NYC or London?
Is there anything about the location that is so important that almost every hedge fund has their office there?
I'm aware that you shouldn't set up a hedge fund in the middle of nowhere because no investors will visit you there and some other things.
But how is it in for example Los Angeles , CA?
How would chances be to run a Hedge Fund from there / startup Hedge Fund?
Do investors even consider coming to Los Angeles ?
Especially for Startup Hedge Funds this might be an advantage just because of the rent prices for offices and apartments/houses and just because the average living / monthly costs would be kept lower.
Kind regards
NYC and London are financial centers, which means there all sorts of benefits to being located there or nearby.
I'm aware that they're financial centers but I mean if "Investors" also tend to visit Los Angeles or anything except for these for Funds they can invest into.
Yes, but it's not just about the investors, innit? It's also about the counterparties (i.e. banks), staff, etc etc.
This is a very confusing sentence.
A hedge fund needs two things: a) Investors (especially large institutional investors) to put money in the fund b) Investment professionals to manage that money Both of these are concentrated in and around financial centers.
In addition to these big-picture requirements, other things that are helpful to have include access to bankers/sales and trading, prime brokerage, research analysts, capital markets etc and being in a financial center cuts down on the friction. One other marginal factor is that hedge fund professionals work market hours+, and if you're in LA that 9:30 market open is 6:30 your time.
Additionally, it's not like there aren't hedge funds in LA or wherever-there are. Just fewer for reasons like what I mentioned above.
Also, you might want to be closer to the financial centers so that you'll have the best connection if you're doing algorithmic trading.
Don't get started with algo trading...there's a lot of funds also in California (ie Silicon Valley) it just happens that NYC is a financial center and CT is a very quick train ride away (from Greenwich/Stamford). Whenever anyone at my fund has a meeting in NYC, they can be there in 45 minutes. Convenience factor is very big.
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How much does geography matter for starting a career in hedge funds? (Originally Posted: 11/25/2016)
Your personal ties aside, how would you rank places in the US on a scale of 1-10 for starting out a career in hedge funds?
I would think New York is a 10 but I actually think the other places actually have a non-intuitively sharp decline from there (e.g., Boston / SF are a ~5, Houston / LA are ~2.5, somewhere else a ~0.5).
A related question: where is the point of diminishing returns if you are only staying in New York for the purpose of "being part of the finance world" for a bit? I would think it is helpful to stay in New York for a few years, but then after that it wouldn't matter much provided you are actually good at the job, but that either way there's a huge network benefit of being in NYC.
From my understanding, what it seems like is the majority (and honestly) best place to be for HF would be somewhere like your NYC, or Fairfield County, CT areas. If you run a L/S equity fund or funds that typically run on equities primarily - you won't have to wake up at ~5am every morning if you're in say San Francisco if you're trading US equities.
That being said, there are so many different strategies that it makes it difficult to really pinpoint a good geographical location for hedge funds. If you wanna do something like macro or merger arbitrage, your location doesn't matter as much. If you're a niche investor in say - Asian equities, you may find yourself in say an SF office whose time difference is much closer to say Japan's markets.
In general, I'd say SF is growing pretty rapidly, put it at about a 6. NYC/Greenwich/CT area is definitely a 10 irregardless of strategy. Your Houston players are more energy driven strategies, Dallas has a few funds up and coming trading your common strategies, I'd put them at a 5 or 5.5. Boston is also pretty solid and excluding Baupost it's the best area outside of the Greater NYC area to go for HF's across the board: 7. Chicago is also pretty solid being that there's several macro and quant funds HQ'ed there, again probably a 7.5/8. LA is also similar to SF minus the whole "tech bubble" that certain SF funds specialize in. There's a bunch of credit and special situations funds run out of the West Coast (either LA or SF) so it's probably got the same exposure as SF funds, perhaps a little less. Then the "random" places - your Florida's, Atlanta, Washington, etc., do control a certain part but honestly they're somewhat sporadic. While lots of Chicago funds are known for quant trading and macro strategies, a place like Florida doesn't necessarily have that "strategy stereotype."
Again, this is all super observant and somewhat subjective. I've interned at two hedge funds prior that were both in the NYC area - two vastly different strategies. That in mind that definitely leads me to believe that the majority of funds are in that area and they can employ any different strategies, whereas like I said - SF funds that run L/S books are naturally gonna be less common being that their day starts 3 hours earlier with an NY market opening at 9:30am.
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