Vicki Martin-Odette in The Economist: Hedge funds in Texas - Stetsons and spreadsheets


For a state more closely associated with cattle and cowboys, Texas is home to a surprisingly big herd of hedge funds. They manage around $40 billion, making Texas the fifth-largest US state for hedge-fund assets (after New York, Connecticut, Massachusetts and California), according to the Blue Heron Group, a research firm. Some of the industry’s biggest names, like Lee Ainslie of Maverick Capital and Eddie Lampert of ESL Investments, have ties to the state or Texan investors.

Being close to the oil and gas industries also gives managers an investment edge. Take Centaurus Advisors, a $5 billion energy hedge fund run by John Arnold, once a natural-gas trader at Enron. Or BP Capital Management, founded by T. Boone Pickens, an oilman. There are dozens of energy-focused private-equity firms.

These are not the only draws for hedge funds. The costs of living and of operating a business are cheap. Corporate taxes are low and there is no state income tax, which is why Texas has also become so popular as a headquarters for big companies. Managers have to pay a maximum rate of only 0.7% on their fund’s management fee. That’s much less than the 9% their peers in New York state have to pay on both their management and performance fees, says Vicki Martin-Odette of Haynes and Boone, a law firm. This may be why Mr Ainslie’s Maverick keeps its official headquarters and back-office operations in Dallas but its main executive team in New York.

Excerpted from The Economist, July 28, 2011. To view the full article, click here. 

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