Things are bigger in Texas. Or so they say. (They may be right.) While New York and California lead the states in hedge fund assets, managers, and investors, Texas trails by less than a country mile.
Preqin, a leading source of hedge fund data and intelligence, reports that the great state of Texas had, as of March 2016, the third most institutional investment dollars in hedge funds in the United States.
Where Investment Managers May Go When They Go to Texas
If you’re an investment manager planning a trip to the Lone Star State, here’s where the big money may be, by city:
Houston (40 institutional investors)
Richmond/Sugar Land, both suburbs of Houston (25)
Fort Worth (15)
Texas is a business-friendly, lower-cost places for hedge fund investors – and managers – to do business,” said Simms Browning, a recruiter of hedge fund managers based in Austin. “Texas has lower overall costs, taxes, and regulatory burdens for investors, so that’s where capital tends to flow.”
The Biggest Texas-Based Investors
The Teachers Retirement System of Texas (TRS), with more than 1.3 million participants statewide, had invested approximately $15 billion invested in hedge funds. TRS was largest single institutional investor in Texas as of January 2016.
The University of Texas Investment Management Company held approximately 30% of its total assets in hedge funds.
Crestline Investors, a Fort Worth based fund of funds alternative investments manager, held roughly $7 billion in assets as of early 2016.
According to the Managed Futures Association (MFA), the largest Texas-based corporate pension plan investors in hedge funds were Lockheed Martin, Verizon Wireless, General Electric Drilling and Production, and Dow Chemical. Those five firms alone had approximately 35,000 employees in Texas.
Notable Numbers for Asset Gatherers to Gather
220 The number of hedge fund managers based in Texas and tracked by Preqin.
227 The number of Texas hedge funds tracked by Preqin.
44. The number of new hedge fund start-ups by Texas based firms in 2015.
40 The total number of institutional investors based in Houston alone.
16.6% The average allocation of Texas-based institutional investors to hedge funds.
1.45% The mean management fee for Texas-based managers.
Size and Age Matters, Too
Size matters, at least for the largest hedge fund investors – those with portfolios of $1 billion or more – whether they invest in a Texas-based firm or elsewhere.
Larger investors also typically have a higher bar on minimum assets under management. Most have policies preventing them from making outsized investments in a single fund.
Institutional investors “Require an average track record of three years from a fund, which is lower than the minimum expectation of all other investors at 3.7 years.” (Source: Preqin Hedge Fund Spotlight 2015.)