The Big Smoke or the Big Apple?

Does it matter where your hedge funds are based? The performance numbers say it does.

The UK capital and financial hub of London is seeing billions of pounds flood into new hedge fund launches this year, according to specialist website HedgeThink. Established managers who made their names at Ziff Brothers Investments and Tiger Management are reported to have raised significant amounts for new projects. It is already home to Man Group, Brevan Howard, and BlueCrest Capital Management of the top hedge fund firms globally.

On the other hand, the Big Apple has seeded more new hedge fund launches than any other city since the financial crisis, and is widely cited as the best city for hedge fund talent. Och-Ziff Capital Management, Paulson & Co., and Highbridge Capital are among the biggest residents. So which is the true capital of alternative strategies?

Data from Preqin shows unequivocally that New York-based hedge funds outperform their London rivals in the longer term, no matter what strategy. The margin is often quite pronounced: Multi-strategy funds in the Big Apple gained on average 8.28% a year in the five years to the end of April, while in London similar funds posted just 4.99% a year. New York’s macro funds gave investors 9.9% a year, while London’s managed just 2.86%.

In the first four months of 2015, London’s resident hedgies hit back, posting better returns than their rivals across the pond in five out of the seven categories Preqin’s data covers. However, New York’s winners were again the macro- and multi-strategy sectors.

Next year will see the British public vote on whether to remain a member of the European Union. With the uncertainty and speculation this is likely to introduce over the next 12 months as the UK government attempts to renegotiate the terms of its membership—and with hedge funds widely said to favour a “Brexit”—it will come as no surprise if New York further strengthens its stronghold on the hedge fund sector.

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