In the US, there is a place that’s as renowned as Silicon Valley. While people in Silicon Valley talk about the binary system, people here talk about financial derivatives. While Silicon Valley has god-like unicorns, this place has legendary hedge fund titans that manage hundreds of billions of US dollars. This place is Greenwich, the World’s Hedge Fund Capital.
The number of hedge fund companies in Greenwich exceeds that of any other places in the US except for New York. According to Connecticut Hedge Fund Association, Connecticut has 420 hedge fund companies, with a combined asset value of approximately 750 billion USD and managing over 3 trillion USD in total.
The secret behind Greenwich’s success is intriguing. As the chairman of Greenwich Economic Advisory Council and the principal of MAC Advisors, James Aiello is like a doctor, feeling the pulse of Greenwich and listening to its every heartbeat.
Gloria Ai, the founder of iAsk Media, interviewed James Aiello on the 2018 West-lake Summit on Global Alternative Investment Fund, exploring and uncovering the secrets of Greenwich.
The Secret of Greenwich?
Despite of being a small town with an area of merely 174 square kilometers, Greenwich is home to the headquarters of over half of the world’s hedge funds. It ranks No. 1 in per capita assets intensity in the world, No.2 and No. 3 in total assets in the US and in the world respectively, and No. 1 in per capita income in the US. Bridgewater Associates alone has 150 billion USD under management.
It takes less than an hour to go from Greenwich to Manhattan, New York, by urban rail transit system, roughly equivalent to the distance between Shenzhen and Guangzhou. Currently, over half of the home owners in Greenwich are not local people but hedge fund elites from all of the US.
Gloria Ai: Can you summarize it within one sentence what is the secret of Greenwich?
James Aiello: I think it’s three basic things. I think the secret of Greenwich is number one, the quality of the talent. The second thing is the tax base and it’s very very low relative to other parts of the New York area. The third thing is the quality of life. It’s a beautiful place not unlike Hangzhou. We have here gardens and great restaurants and beautiful community and well maintained, and people value that.
Gloria Ai: Did you notice there are many fund towns in China? What kind of experience can we learn from Greenwich?
James Aiello: Yes, I think there are at least 25 fund towns. I think the core of Greenwich is that it’s a place that people want to live. It’s a place where you want to go to school, where you want to raise a family, where you want to live your life and there’s balance. It’s sort of got this oasis feel to it, while still being very high performing and engaging people. And all the things that New York City has, or Shanghai or Hong Kong, it has all those things, except it’s a quality of life that you really like, you really tolerate. So when you have that as its core, people then come and realize, they can do more than just live here.
Proximity to a booming economic circle, beautiful environment and low taxes are the three essential elements for a city to become the capital of hedge funds. Greenwich has all three, and the amount of wealth managed by its local hedge funds has reached an astounding number. For a while, people considered it a status symbol to be able to mail postcards to friends or family from a Greenwich address.
Are there opportunities for hedge funds in China?
After 13 years of ups and downs, the fund industry has achieved rapid development. According to a report by BCG, by the end of January 2018, the global private equity industry has registered an all-time high, raising a total of 744 billion USD, a 25% year-on-year increase.
The scale of hedge funds has also reached a new height since one year and a half ago. As shown by latest data from HFR, by the end of 2017, the scale of hedge funds has reached 3.211 trillion USD globally. According to the statistics from Institutional Investor, in 2017, the top 25 highest earning hedge fund managers had a jaw-dropping combined income of 15.4 billion USD.
The global hedge fund industry is like a giant treasure house for gold seekers. Everyone is on constant lookout for new opportunities. As a “Wall Street veteran” who has served in Goldman Sachs, JPMorgan Chase and Citibank, James Aiello has over 20 years of consulting and asset management experience in enterprise consultation and real estate private equity fund, and has unmatchable insights in private fund market.
Gloria Ai: As we know, hedge funds have developed really rapidly over the past 60 years. Do you think developing hedge funds could be a great opportunity for China?
James Aiello: I do, if it’s done in the right way. I think that there’s so much expertise in Greenwich, New York City, London, primarily those three markets. And I think if China were to focus on certain facets of that, and it might be certain markets like access to local A shares and Chinese securities, that, frankly, people in London and New York and Greenwich aren’t really focusing on, there is an expertise there that’s very, very valuable. It could also be sector specific. So maybe a fintech area, or something that is very specific that this area could be distinctive in. You can’t be everything to everybody. And London and New York and Greenwich have a very long history. They are gonna probably be ahead in the big picture, say global macro-strategy, that kind of stuff. But if you pick your spots and invest in those, that’s what the best opportunity is.
As the US economy approaches the end of expansion in the current cycle, even Waterbridge Associates, the largest hedge fund in the world, is going short on all financial asset classes and predicts that 2019 will be a dangerous year. Under the austerity policies, the US market is showing signs of danger everywhere and may drop to a freezing point. As a result, the rich investors in Wall Street and the fund giants in Greenwich are turning their eyes to China.
According to the data released by Eurekahedge, the average ROI of hedges funds in Greater China exceeded 13% for the first half of 2017, ranking among the best-performing investment strategies in the world.
Today, the hedge funds that used to pessimistic about China’s market are trying to snatch more market share in China.
Is China worth investing in?
13,000 investment institutions, 8.7 trillion RMB in capital, and the 2nd largest equity investment market in the world. All these figures show that after the initial exploration stage, rapid development stage and adjustment stage, China’s venture capital industry has entered an unprecedented stage of vigorous development.
In China, entrepreneurs are building dreams with unprecedented speed and investors are reaping wealth with astounding efficiency. Amid cheers from all sides, even international investment banks, such as JPMorgan Chase and Goldman Sachs, have claimed that “China represents one of the biggest development opportunities in the world”.
Gloria Ai: A few weeks ago, Warren Buffet said China is worth to invest. Do you agree?
James Aiello: Yes, absolutely. I think what’s exciting is even though there’s going to be hiccups and issues, and there’s a lot of saber rattling at the highest levels of both of our governments, at its core there are people who want to be productive and they want an economy that’s strong. I think you have to not focus on the noise, and more on what we can learn from each other and how can we make money together, and share ideas and share education and share culture and work together because together we will be even individually stronger. So absolutely, I think there is a great future, and the key is really communication. And it’s being honest and being open with each other.
Gloria Ai: What specific areas do you think could be the most potential markets?
James Aiello: I think continuing with the manufacturing relationship, China and US have a very special relationship. Just look at Apple. Itself is designed in the country of California, but manufactured in China. And that works pretty well. Everyone does very well with that product. But more than that, I think it’s more becoming into technology and financial services. And I think I’m probably most excited about the combination of these two things, because I think technology plays a role in everything these days. And I think between the talent that’s in China and the expertise that’s in the United States, those are two massive markets that through working together could really dominate the world, and in a very positive way that increases the quality of life for everybody. So I would say technology and finance together are where we should really make the mark. Not forgetting the manufacturing base. We all need products, but focusing on investing in those two areas.
Driven by technologies, the finance industry is undergoing disruptive changes. Technologies like big data, cloud computing, and AI are the true drivers behind the innovative development and evolution of finance. Currently, China is marching toward Fintech 3.0. It is expected that by 2020, in China, fintech’s core ITFIN business will have a market size of over 12 trillion RMB, and China will become a globally recognized fintech market with the most rapid development.
The emergence of revolutionary technologies naturally gives rise to numerous uncertainties. Game rules in the market may also change accordingly. Since it is hard to predict which areas will have the greatest potential, rather than waiting for a clearer answer, we should get a head start by making farsighted investments in technologies.