South Florida: Low-Tax, High-Appeal Alternative for Fund Managers
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In a recent CNBC article, Kelly Smallridge, CEO of the Palm Beach County’s Business Development Board, and others talked about Florida’s appeal for hedge funds and registered investment advisors. More than 500 money management firms are now based in Florida, and 60 hedge funds, 19 private equity firms and more than 200 family offices call South Florida home, according to the article. But despite the growth of the local investments industry and recent relocations to the area by several high-profile funds, there are still some detractors.
“There is no danger of a hedge fund migration to Florida,” said Omeed Malik, the New York-based head of U.S. prime brokerage sales at Bank of America Merrill Lynch, in the CNBC article. “New York City has and always will be the epicenter of the financial industry.”
First things first. No one is predicting a mass migration of the U.S. hedge fund industry down the Eastern Seaboard. As Malik noted, New York City will continue to be the financial hub of the U.S. for the foreseeable future.
However, rather than look at it as an all-or-nothing scenario, we need to acknowledge that South Florida does offer a great alternative for hedge fund managers, particularly for small to midsize funds that have lower margins and stiff competition. As regulatory compliance costs continue to rise and the alternative investments industry becomes more competitive, it becomes increasingly important for fund managers to find ways to cut costs.
In high-tax states like New York and California, fund managers can be subject to state income rates in excess of 8.82% and 12.30%, respectively – and that is in addition to federal taxes. Florida does not have a state income tax on alternative investments, which means fund managers who move to the state can immediately see a significant boost to their bottom line.
Miami is still a relatively young city, and it’s still evolving. For fund managers who are interested in an alternative to the traditional financial centers, South Florida has a lot to offer. In addition to the tax savings, here are just a few of the benefits:
- Proximity to Latin American investors and business owners
- Commercial and residential real estate prices
- Destination of choice for high-net-worth individuals
- Excellent quality of life
To learn more about the advantages of relocating to Florida, download my new white paper, “Why You Should Consider Moving Your Hedge Fund to Florida.”
Raul Garcia, CPA, is a Entrepreneurial Services Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.
