Whether you are preparing to launch a new hedge fund, considering expanding your established firm to another geographical location, or simply interested in relocating to a new space, there are a few important real estate options to consider, including commercial space, subleases, and hedge fund hotels. Today, we will delve deeper into one of these primary options, hedge fund hotels (also known as “managed suites” or “executive suites”) to analyze the benefits of this type of real estate.
During part 5 of our 6-part Hedge Fund Launch Webinar Series, we discussed the real estate frontier for startups with guest Ben Friedland, Executive Vice President at CBRE in New York, and his colleagues.
When searching for a space for your firm, “The trickiest part is the great unknown,” said Friedland, expressing perhaps the most common sentiment of new managers. “Flexibility,” he continued, “is the most important factor.” As a new manager, you must be willing to ask yourself, How is my firm going to do? Will it double in size in a year or shut down?
This uncertainty calls for careful consideration of what type of space is best suited for your firm. Friedland described four typical types of spaces:
Temporary office suites; and
To help emerging hedge fund managers we are running a 6-week Hedge Fund Launch Webinar Series. This week we were joined by Frank Napolitani, Director, Financial Services at EisnerAmper. During the 30-minute interview, Frank shared insights on the benefits of outsourcing to service providers as well as advice on how to conduct proper due diligence on front, middle, and back office operations.
The Learning Curve
“There is a learning curve to get your hands around what it takes to run a business,” Frank began. Often, he said, a portfolio manager that has left a larger hedge fund complex or investment bank knows perfectly how to run a book, but has little knowledge about how to run a business. The smartest managers, Frank said, are the ones who “sit back, listen, and consult a number of different service providers in the space before moving forward.”
He went on to note that the operational due diligence (ODD) industry has grown dramatically post-Madoff. While a manager’s pedigree, investment process, and performance used to take precedence, it is now front, middle, and back office operations plus legal compliance that are most important.
Frank warned: “Keep everything up to date.” Sophisticated investors will follow up quarterly, twice a year, or annually. Because they collaborate with many ODD teams, research teams will immediately have a feel for what is right and what is wrong with a manager from a front, middle, and back office perspective. “They won’t waste too much time on someone they won’t seriously invest in,” Frank concluded.
The following article is part of our Hedge Fund Insiders Article Series and was contributed by CBRE Group, Inc. Read more articles from the Series HERE.
As a team focused exclusively on advising hedge funds on their strategic real estate planning, we have observed several trends continuing to proliferate in the market. Below are three real estate-related issues relevant to all hedge funds.
Increasing Construction Costs
Construction costs for office interiors throughout New York City are rapidly increasing and firms that built space 5–10 years ago will find that overall expenditures for the same quality installation have increased 30–40% based on benchmark construction cost data across NYC. Although benchmarking numbers are not available specifically for hedge fund construction, high-end design details like custom millwork and architectural metal and glass are often a significant part of the design and are seeing the most rapid appreciation in cost, driving even more significant increases specific to hedge funds. Additionally, these premium and other critical trades such as HVAC and electrical are in high demand and can cause scheduling delays, pushing associated costs higher than ever.
It is crucial for hedge funds to have an owner’s rep / project manager advisor involved to ensure projects are appropriately budgeted from the initial due diligence phase, assessed on a project-by-project basis throughout the site selection process, and effectively implemented during the design and construction of the selected space.
It’s been quite a year, and as always, it’s hard to believe it’s over. In 2014, Hedge IT continued to thrive in its goal to provide advice and insight into hedge fund technology and operations. The financial services industry is evolving at a rapid pace, and we’re evolving our topics and conversations to keep up. Across 100 blog posts this year (not including this one), almost half of them – 49 to be exact – addressed the topic of security, which is undoubtedly one of the single most important focus areas for hedge funds and investment firms today. In addition to security, we covered everything from tips for starting a hedge fund to avoiding cloud mistakes to hiring for IT roles.
Looking ahead to 2015, we plan to keep the conversations tuned in to what really matters to hedge funds when it comes to technology, and we’ll share as much content as we can in as many formats as we can. But before we get too ahead of ourselves – it’s not quite 2015 yet – let’s take a look back at 10 of our most popular blog posts from 2014.
We’ve tapped the expertise of nine experts in the hedge fund startup space to share their thoughts on a range of topics specific to emerging hedge fund managers. Below are some highlights, and you can read the entire Emerging Managers Insight Series eBook here.
Set a realistic schedule to launch and don’t rush to get the hedge fund up and running too quickly. Take the time to partner with the right service providers that will support your business from the start and as you grow.
Budget for a marketer in your first two years of operation. If you look at the largest funds in the industry, they all have substantial investor relations teams that keep current investors informed while prospecting for future investors.
Capital introduction is a much sought after service from prime brokers which can be very helpful in providing a new hedge fund exposure to potential investors. Take advantage of introductions and begin to build relationships with potential investors.
The following article is part of our Emerging Managers Insight Article Series and was contributed by CFS Group. Read more articles from the Series HERE.
There are many layers to creating a successful launch of a hedge fund, and often one that is overlooked is implementing the right furniture, while keeping in mind budget, timeline and dimensional restraints for your new office space. For someone starting a fund, and relying on your own capital, creating an office space within a budget is essential. In order to do so, you must partner with a furniture dealership that understands the marketplace and has the creativity to provide a solution that is light on the wallet but has the feel of stability and success.
As you would expect, just like many other businesses, the commercial furniture industry is a very competitive, relationship-driven sale, and unfortunately the client is usually on the raw end of the stick. Let’s give an example:
Hedge fund A has six traders, and in their mind “we need a trading desk.” But the fund's users only have one PC and two monitors each, which equates to a minimal technology requirement. The fact is that a full-blown trading desk can range from $2,000 to $5,000 (for height adjustable product) per user.
Here is what the fund manager needs to know. There are other options that will adequately handle your technology, save you up to 60-70% and give you the look and feel of a trading desk solution - savings of $10,000 just by having the proper relationship and information.
What comes to mind when you think of Miami, Florida?
Beaches and sun, exciting nightlife, a popular Will Smith song. These are typical associations with Miami. How about finance? This might not be the first thought that comes to mind, but the city of Miami is hoping that will change. Miami is a major financial hub and growing, and according to the president of the Miami Finance Forum, it’s the second most concentrated financial hub behind New York City.
Currently home to over 60 international banks and 100 alternative investment companies, Miami and its busy Brickell Avenue has emerged as “Wall Street South,” and according to Forbes is luring many financial firms away from more traditional hubs such as New York and Greenwich, CT.
In the past on Hedge IT, we have focused on the real estate markets in both the US and UK. Today, we move across the pond and provide an update on Hong Kong.
Asia has experienced unprecedented growth in its hedge fund industry, especially Hong Kong, despite difficulties in recent global financial markets. However, office space in Hong Kong is still undeniably the most expensive in the world.
Hong Kong’s Central District is a bustling location with gleaming skyscrapers and is home to about 90% of Hong Kong hedge fund offices. According to CBRE Global Research and Consulting’s 2013 Prime Office Occupancy Costs survey, the Central District’s overall occupancy costs of US$235.23 per sq. ft. per year topped the list as most expensive for the third consecutive time. London’s West End followed with total occupancy costs of US$222.58, and New York’s Midtown Manhattan ranked 10th on the list with occupancy costs of US$120.65.
Categorized under: Real Estate
Like David bravely dueling with the larger Goliath, small and mid-sized investment firms are often faced with insurmountable odds when competing against larger (and better endowed) funds. With more experience and more assets, larger firms have the advantage when it comes to soliciting investor allocations. But do these inherent shortcomings equal certain failure? If David can emerge victorious, can’t smaller hedge funds?
Earlier this week, we gathered a panel of experts in San Francisco to discuss this topic at length. Following is a brief synopsis of the topics they covered.