New York City and Greenwich, Conn. are widely seen as the
hedge fund industry's power centers, but investors would be
better off with managers from Chicago, Ill. and Boston,
Mass., according to a new study of returns by geography.
Balter Capital Management
, a $1 billion Boston-based fund of
focused on emerging managers led by Brad Balter,
analyzed the performance of hedge funds in seven cities from
2000 to 2011. Apparently the first of its kind, the study
ranks how funds in Boston, Chicago, Dallas, Greenwich, Los
Angeles, New York and San Francisco performed during various
time periods and market shocks, and their correlation to
asset classes and each other.
Managers in Chicago performed best, producing an annualized
gain of 13.64% between January 2000 and December 2011. Boston
was second at 11.90%, followed by Dallas (up 11.53%), New
York (up 10.49%), Greenwich (up 9.89%), Los Angeles (up
9.35%) and San Francisco (up 9.33%).
"Our findings suggest that hedge fund performance behavior
varies widely depending on the geographical location of the
firm," explained the report, which was led by Balter senior
analyst Ben Deschaine. "A major contributing factor to
differences in performance is likely driven by the style and
strategy of hedge funds that are most prevalent in a
The report suggests that cities have developed areas of
expertise and investment styles. For example, San Francisco
firms tend to make more aggressive bets using their
technology expertise; Chicago's managed futures prowess leads
to more uncorrelated returns, and the Greenwich area's macro
bent allows for better crisis-management.
The correlation of geographic returns also suggests idea
sharing, exemplified by various Dallas-based funds shorting
subprime mortgages like Highland Capital Management, Hayman
Advisors and Corriente Advisors. "In the 2007 time period,
Dallas exhibited much lower down market capture and beta than
all of the other cities, which we believe is due to the short
subprime trade that some high profile managers had on at the
time," the report said without naming specific funds.
Balter Capital Management Hedge Fund Regional Performance