Greater Hedgistan, as it is now being called, is a land inhabited by the prosperous few. It is made up of lower and upper Hedgistan, connected by the Hutchinson River Parkway and the I-95 freeway.
Lower Hedgistan comprises the swathe of midtown Manhattan bordered to the east by Park Avenue (with a few outlying communities as far east as Third Avenue), to the north by Central Park South, to the east by Avenue of the Americas and to the south by a slightly ill-defined demarcation somewhere around 34th street.
Upper Hedgistan is, in effect, Greenwich, Connecticut. Of the world’s 350-odd hedge funds with more than $1bn assets each, almost half are based here.
In one respect the reason for the existence of such hedge fund enclaves is simple. Hedge fund managers generally share at least one common characteristic, based recently as much on their average 2 per cent management fee as on their 20 per cent or higher performance fees: wealth.
They can afford to live and work in the most desirable areas. But the fact that Greenwich in particular has established itself as one of the leading global hedge fund centres cannot be attributed solely to its picture postcard good looks, good restaurants, decent parking space for cars and yachts and a plethora of designer stores. One prime brokerage executive admits that part of the reason for the development of the Greenwich hedge fund community is vanity. “They like to be close to, and to be seen by, their peers,” he says.
Among reasons less commonly cited by Greenwich-based managers for their choice of office location is that it is close to where they live. As a general rule, hedge fund managers abhor wasting time, and the less time they spend commuting, the better. That said, the reverse commute from Grand Central Station on 42nd Street to Greenwich is becoming less uncommon.
Other reasons behind the popularity of Greenwich include the advantageous Connecticut personal income tax rate, proximity to New York City – from where prime brokers and the like are happy to make the trip on a regular basis – and perhaps most importantly, the growing Greenwich-based hedge fund related workforce.
Hedge fund administrators, technology providers, prime brokers, funds of hedge funds and other support functions have all set up shop in Greenwich, making it an ever more attractive and less frantic alternative to Manhattan or Jersey City. The hedge fund managers came first, but the support system that followed them has now become one of the main attractions for newer managers.
So Greenwich is a magnet for hedge funds and their managers because basically all the infrastructure and intelligence they need to run their businesses is available. Those with billions in assets under management also do not really care too much about real estate prices for offices or their homes. And the gated mansions of Greenwich provide the closest thing to the privacy of Beverley Hills available on the east coast for the hedge fund billionaire who eschews publicity.
Topping the list of Greenwich hedge fund billionaires is Edward Lampert, head of ESL Investments, chairman of Sears and already being talked about as his generation’s Warren Buffet. He has a net worth of $4.5bn, according to Forbes, the business magazine. Next is SAC Capital’s Stevie Cohen with a net worth of $3bn followed by Paul Tudor Jones II with $2.5bn.
The number of jobs in Greenwich’s home state of Connecticut, itself long a magnet for the investment industry because of its proximity to New York’s financial markets, tripled between 1990 and this year, according to a recent state report.
Investment jobs totalled 21,000 in January across the state, compared with 7,000 in 1990, Of the 21,000, nearly half the total jobs – about 10,000 – are in hedge funds and private equity firms.
