Putting Numbers on the AUM Leaving the North
While it is no secret that there has been a migration of the finance and investment community out of New York and California, other than piecing together vehicle registrations to count people, there have been few hard numbers put on the firms and their AUM that have pulled out. This week, Bloomberg put hard numbers on the exodus, and it’s worse than most imagined. Looking at corporate filings back to the end of 2019, it found that more than 17,000 firms have moved. The two states have lost assets under management (AUM), within their borders, totaling more than $1 trillion.
This has also meant a lot of above average paying jobs, which saps tax revenue, and stresses state budgets. The commercial real estate markets in the two high-tax states have also taken a big hit as deep-pocketed tenants have packed up and left at a time when remote and hybrid work have already bled demand.
The Bloomberg piece makes clear that New York City remains the global center for asset management, but while New York is being slowly drained, it is “fueling a boom” down south. The article discusses the soaring Miami home prices and lifestyle improvements. In Dallas, the finance industry is expanding at a pace reminiscent of the 1980s oil bust. Charles Schwab moved to the area in 2020, and now Goldman Sachs and Wells Fargo are working to create office space to accommodate thousands of employees.
The moves continue to be inspired by costs and weather, and now face-to-face meetings are easier as the Dallas or Boca Raton associate is no longer an “out-of-towner”. The migration has dramatically increased the growth of professionals in the industry, in areas that previously had very few financial firms.
“The Sun Belt is continuing to change – no longer just a place of traditional industries like oil and gas, no longer just focused on tourism, of focusing on the retirement community,” Bloomberg quotes Amy Liu, interim President of the Brookings Institute, as saying.
From the beginning of 2020 through the end of the first quarter 2023, more than 370 investment companies decided to make a move. The companies represent 2.5% of the US total, and manage $2.7 trillion in assets. A high percentage was from the Northeast and the West Coast to Florida and Texas. But, North Carolina and Tennessee together grew by $600 billion in assets now managed within their borders. This is primarily from Alliance Bernstein moving out of New York and to Nashville, and Allspring Global Investment out of San Franciso and to Charlotte.
The AUM Migration by Region (Q1 2020 – Q1 2023)
Washington State saw three firms leave during this period, but the assets under management in the state dropped 19% as a result, as Fisher Investments was one of the three. Connecticut, a long-time suburb of the Big Apple is known for the hedge funds that have been headquartered there and enjoying lower taxes than in “the city.” The proximity to New York and the rising Connecticut taxes were traded by enough firms that Florida now has more assets under management than Connecticut.
Florida acquired the most assets from the migration from New York, Ark Investment Management, run by Cathie Wood, and Carl Icahn’s Icahn Capital Management were prominent names. Ken Griffin’s Citadel from Chicago is altering the South Florida skyline as it builds out offices, and DoubleLine moved from Los Angeles to Florida’s West Coast.
Smaller firms are on the move too. Whether they are following the sun, or the wealthy baby boomers, Palm Beach saw 37 investment advisors relocate, and Miami experienced an influx of 63 advisors.
The AUM in these new states is being enhanced by wealthy individuals also picking up and moving from their higher-tax residences. Tiger 21, a worldwide network of more than 1200 high net-worth investors, with assets over $150 billion, has grown its Florida chapter.
Take Away
The only thing that stays the same is change, as the saying goes. The pandemic brought on a lot of changes that most did not see coming. The migration out of places widely viewed as more difficult to live in because of costs, or year-round temperatures includes powerful financial firms. These firms are bringing in professionals who are accustomed to a certain way of conducting business. Until recently, the ability to do business this way did not fully exist in the areas where their firms have relocated – now it does.
Managing Editor, Channelchek
Sources
https://www.bloomberg.com/graphics/2023-asset-management-relocation-wall-street-south/