Cities for starting a prop firm/hedge fund?

M

misaki

I run a small prop firm (20+) and will like some suggestions on a good place to relocate our office.

Reasons being:

(1) My firm started out in MA only because it's near the grad schools/colleges that the early core of my team went to, but now that we are expanding, we figured that it will be good to decide on a place for proper economic reasons, before it becomes too late and cumbersome to move.

(2) Well, we are just sick of the east coast for personal reasons, and everyone in my firm has agreed to a move because we have enough capital to subsidize everyone's moving costs.

(3) We recently decided to go into investment management and restructure ourselves as a hedge fund. I understand there are advantages associated with being geographically "near" our potential investors. This is actually less of a concern as our revenue is still strong without our investors, so I don't want to be chained to our investors.

We're actually open to any city in USA. Possibly Europe or Japan. Our trading activity is scattered across the three (but mostly centered in Europe), and our investors are mostly concentrated in LA, with fragments in London and Tokyo. The legal impediments are sorted out, with our master fund offshore now.

I think it's a matter of convenience vs quality of life. It's easiest to move within USA, perhaps CA, but we already hate the night-shifts and starting the day around 2 AM for the European session. Capex and familiarity with the place is another issue. I'm not familiar with the costs outside of the US nowadays, but at least I know the computer equipment and office space is cheap and accessible here.

Thanks in advance!
 
Interesting post.

Very well written, well put together but yet I don't get it. Something is fishy and it seems like a BS post. Why post this and why do you care what anyone else thinks?

1 - if you are asking you aren't an owner or partner so don't worry. They will tell you where the office is relocating to.

2 - Really 20+ people?? How many are remote and how many are local? The two things that don't make sense are that you say you are expanding but then you also say you are relocating and that you say "we" as if you had a say int the decision. Did you really get 20+ people that live & work in MA to all agree to move? If so they you can probably get 20+ people to agree on a new city.

You are either relocating due to expenses and cost (hinted at) or expanding and therefore would keep your MA office. An owner(s)/partner(s) in the prop firm would make these decisions and it would just be so.

If you have 20+ people let's say 25, that's an office manager (secretary)... maybe two, compliance, #1 guy/president/owner/partner, maybe two others... we are up to six. Six or seven traders plus let's say you aren't that sophisticated so you need a 1:1 night crew, or you have 9-10 traders and only 2-4 night crew... That's another 14 max and puts you at 20 "people". 1-2 more and you are at 20+.

Office staff and night crew are disposable. If you have even 2-5 equity partners that all want to relocate they will almost NEVER agree on the same city so they will stay in the MA area because their kids are in schools, they belong to country clubs or yacht clubs and they have summer homes or ski houses nearby.

Your firm started in MA because of the grad schools/colleges in MA. Are you really going to move traders and employees over to Europe or Japan (and get them visas and pay for moving expenses) or are you just fluffing?

What are you getting at?

If you try and move like that (whether it be from MA to Japan or MA to California or NYC for that matter) you will never retain every employee, you will piss people off and it will cost a ton of money.
 
I thought the same as Winston. Why ask us, instead of the group? After all, they are going to move, not us.

But anyhow, it is not such a hard decision. You get a piece of paper and start with a list of advantages for different timezones, then taxing laws for different states, climates, city sizes, etc. and when you are finally done, you got your few preferred locations.

Then you guys vote....

Edit: On second thought, he is probably just fishing for traders here... :)
 
Quote from WinstonTJ:

Interesting post.

Very well written, well put together but yet I don't get it. Something is fishy and it seems like a BS post. Why post this and why do you care what anyone else thinks?

1 - if you are asking you aren't an owner or partner so don't worry. They will tell you where the office is relocating to.

2 - Really 20+ people?? How many are remote and how many are local? The two things that don't make sense are that you say you are expanding but then you also say you are relocating and that you say "we" as if you had a say int the decision. Did you really get 20+ people that live & work in MA to all agree to move? If so they you can probably get 20+ people to agree on a new city.

You are either relocating due to expenses and cost (hinted at) or expanding and therefore would keep your MA office. An owner(s)/partner(s) in the prop firm would make these decisions and it would just be so.

If you have 20+ people let's say 25, that's an office manager (secretary)... maybe two, compliance, #1 guy/president/owner/partner, maybe two others... we are up to six. Six or seven traders plus let's say you aren't that sophisticated so you need a 1:1 night crew, or you have 9-10 traders and only 2-4 night crew... That's another 14 max and puts you at 20 "people". 1-2 more and you are at 20+.

Office staff and night crew are disposable. If you have even 2-5 equity partners that all want to relocate they will almost NEVER agree on the same city so they will stay in the MA area because their kids are in schools, they belong to country clubs or yacht clubs and they have summer homes or ski houses nearby.

Your firm started in MA because of the grad schools/colleges in MA. Are you really going to move traders and employees over to Europe or Japan (and get them visas and pay for moving expenses) or are you just fluffing?

What are you getting at?

If you try and move like that (whether it be from MA to Japan or MA to California or NYC for that matter) you will never retain every employee, you will piss people off and it will cost a ton of money.
More...

Your suspicions are well-founded. I don't want to be wasting anyone's time if they don't think that I'm making a legitimate post. But given that you've put time into crafting a response, I'll return the favor with some clarification.

The concerns that you mentioned are exactly the ones that have prompted us to make move before it becomes too late. It's a young firm; we mostly got together because we were in the same colleges/grad schools (as I mentioned). A good portion of us are in our first full-time jobs or fresh out of grad school - there's even a couple who are part-time and about to graduate or finish their thesis defenses - so we're lucky that we don't have social or family ties in the area.

It's a very common stage for small, university-based firms to consider their first major relocation. If you think it's not realistic, then I can only say that it's a myopic view and I'm not here to defend my claims because neither of us have anything to gain out of that. But if you do wish to make a proper discussion, I'm here to debate the merits of the places that are suitable for a small buy-side firm, which I was told, is a well-represented demographic here.

We're decently funded but none of us have yachts, summer houses or ski houses nearby - I don't think many on my team aspire to attain those (or they wouldn't have been on my team). And I don't want to perpetuate the myth that the kind of work we do is a great source of income. We could have gone to SV startups or took up job offers elsewhere and achieved similar results, instead of carving alpha out of a small market.

And yes, we've voted and narrowed down to a few places (CT and WA in particular) - but they are very different places, so I definitely want to hear more experienced opinions before we make a huge decision.

> DeeDeeTwo
> Pekelo
We're at a deadlock because there's too many of us. I have their verbal consent, but as you all have identified, deep-inside, I know there's a few who want the chance to be near their family and so on. The problem is complicated by the fact that a couple of us aren't local (which explains the geographic distribution of our early investors), and that those of us who are at our first jobs don't actually know good places to work.
 
Why expand geographically away from the major source of your talent ? Sounds like a recipe to grow stale with your original people and your original people's strategies and ideas. This business is so difficult and so dynamic that IMHO your original core staff will have to turn over in order to keep up with the industry. Seems like you believe that the status quo will work so well into the future that you can sever the one tie that got you to the point you are in the first place. Citadel and SAC hire and fire like crazy for a very good reason.
 
Move to the Caymans. Avoid tax. I know Florida, Texas, Nevada, and Alaska have no income tax and I think Alaska pays its citizens. If you go to Fairbanks you'll be surrounded by oil and gold. That could have its advantages. Just remember to pack a sweater or 2 for the winter.
 
Quote from misaki:

I run a small prop firm (20+) and will like some suggestions on a good place to relocate our office.

Reasons being:

(1) My firm started out in MA only because it's near the grad schools/colleges that the early core of my team went to, but now that we are expanding, we figured that it will be good to decide on a place for proper economic reasons, before it becomes too late and cumbersome to move.

(2) Well, we are just sick of the east coast for personal reasons, and everyone in my firm has agreed to a move because we have enough capital to subsidize everyone's moving costs.

(3) We recently decided to go into investment management and restructure ourselves as a hedge fund. I understand there are advantages associated with being geographically "near" our potential investors. This is actually less of a concern as our revenue is still strong without our investors, so I don't want to be chained to our investors.

We're actually open to any city in USA. Possibly Europe or Japan. Our trading activity is scattered across the three (but mostly centered in Europe), and our investors are mostly concentrated in LA, with fragments in London and Tokyo. The legal impediments are sorted out, with our master fund offshore now.

I think it's a matter of convenience vs quality of life. It's easiest to move within USA, perhaps CA, but we already hate the night-shifts and starting the day around 2 AM for the European session. Capex and familiarity with the place is another issue. I'm not familiar with the costs outside of the US nowadays, but at least I know the computer equipment and office space is cheap and accessible here.

Thanks in advance!
More...

for pure lifestyle. I would go with a warm cheap place. texas florida, louisiana. If you need to hire auxiliary staff (programmer) dependent on your investing style that may be an issue. In my experience, Chicago has a lot of realtime talent; silicon valley has a lot of big data talent.
 
Thank you all for supplying proper answers rather than making irrelevant speculations.

Quote from bone:

Why expand geographically away from the major source of your talent ? Sounds like a recipe to grow stale with your original people and your original people's strategies and ideas. This business is so difficult and so dynamic that IMHO your original core staff will have to turn over in order to keep up with the industry. Seems like you believe that the status quo will work so well into the future that you can sever the one tie that got you to the point you are in the first place. Citadel and SAC hire and fire like crazy for a very good reason.
More...

Citadel and SAC also fly their candidates over for interviews: much hiring is done out-of-state, especially so in our area. I've benefited a lot from networking opportunities near my alma mater, but my team agrees that the marginal rate of return on the proximity has greatly diminished.

The idea of locating next to a university to source for talent is greatly exaggerated (and I'm not the only one with this view). Many pharmaceutical companies located themselves next to my college and they clearly didn't get an advantage in the hiring process.

Quote from kmgilroy89:

Move to the Caymans. Avoid tax. I know Florida, Texas, Nevada, and Alaska have no income tax and I think Alaska pays its citizens. If you go to Fairbanks you'll be surrounded by oil and gold. That could have its advantages. Just remember to pack a sweater or 2 for the winter.
More...

I think you're looking from this from a purely personal income tax perspective. No personal income tax does not imply no tax burden. However, it's true that we weighed that in our decision, which was our reason for narrowing down on NV/WA originally.

There's no personal income tax advantage for moving to the Cayman Islands as a US resident.

Quote from marketsurfer:

Something is odd about the original post --- but with that said, there's only one place to be:

http://www.finalternatives.com/node/22624

surf
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Yes, the big four US cities (NY, Chicago, Boston, SF) are obvious choices. Given that we intend to move out of one of them, we are hoping to find a place that is quite different (which is the purpose of this thread).

Quote from 2rosy:

for pure lifestyle. I would go with a warm cheap place. texas florida, louisiana. If you need to hire auxiliary staff (programmer) dependent on your investing style that may be an issue. In my experience, Chicago has a lot of realtime talent; silicon valley has a lot of big data talent.
More...

Thanks! This is more in-line with the type of answers I was looking for. We considered Austin (which also has a good base of hedge fund talent), but couldn't find advantages for TX over NV (e.g. Las Vegas). I will be happy to hear of some reasons for a tiebreaker as I'm not too familiar with both.

We understand that CA incurs a significant, state-level tax burden with the new policies passed last November, so we decided to avoid it. For others who do decide to go for it, for lifestyle reasons too, I'd recommend the area around Newport/Corona del Mar over central Bay Area/SF. I personally prefer Boston over SF/Chicago, though the weather really dampens your spirit after a while, especially if you're not from the area.

Hm. Our team is self-contained at the moment and I hope it doesn't need any addition for a year or two. Although it's naive to assume not. I'm actually looking for physics hires rather than programmers or traders, not sure if that might help narrow on a good location. Frankly, if geographical proximity really made a huge impact, we'd have stayed in Boston. But it seems nowadays (I'm not making a generalization), people who study here don't want to stay here.
 
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