Why Is Nearly Every Hedge Fund Located in NY, CT, or London?

Is it because most over the upper echelons of finance are already comfortable and used to living in one of these financial centers, or do these major finance hubs provide a comparative advantage over places like Omaha, Nebraska? Couldn't hedge fund managers open up shop in the middle of no where and just hire fund raising people from major finance cities? I don't really see the logistical advantage advantage of being in a major finance hub, unless you're a high frequency trading firm that needs co-location services to function properly.

 

The logistical advantage is that hedge fund of funds, investment consultants and pension funds don't want to go trawling around to distant financial centres, they will normally aim to visit several hedge funds on a visit to each location, and therefore if you are located in the middle of nowhere, unless you are extremely prestigious no one will come to visit you. During due diligence investors need to be onsite, almost no institutional investor would consider an investment without an onsite visit. Also remember real estate in a prime location area is a barrier to entry vis a vis the price, 'serious hedge funds' will be able to afford this price. and therefore it serves as a selection criteria.

 

I'm not a HF expert by any means, but I thought I read somewhere that CT has favorable state laws for establishing and running a HF. At the very least, it's probably a better tax climate than NY (both corp and personal) but I could have sworn there were other laws that made it attractive to HF.

 
Best Response
GentlemanJack:
I'm not a HF expert by any means, but I thought I read somewhere that CT has favorable state laws for establishing and running a HF. At the very least, it's probably a better tax climate than NY (both corp and personal) but I could have sworn there were other laws that made it attractive to HF.
The laws are a product of the preceding environment, and not the other way around...especially in CT and TX.
Get busy living
 

Depends on the product they are in. Also like GentlemanJack said tax issues are reasons as well. But mainly its because thats where the money is.

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For one thing, there are plenty of hedge funds in other places as well. (For example, the guy who Warren Buffett picked as his successor at Berkshire had his 2bn fund in Charlottesville). But definitely, the majority are in major cities (I'd add Boston and San Francisco to your list).

But it's not just capital being in the major hubs...actually, I'd argue that's less important...I think whats more relevant is concentration of talent. Most hedge funds are not 1-man shops, and it's fairly difficult to convince people to come live in buttfuck Nebraska. The vast majority of people working at hedge funds now worked in the financial sector previously (whether at banks or other financial institutions), and so naturally you see concentrations of funds in areas where human capital is rich.

 

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