Big Money: Palm Beach’s quest to become ‘Wall Street South’

Palm Beach County, a place known for wealthy retirees and quality golf courses, is seeking a new identity as a financial hub.

Over the past few years, Palm Beach County’s Business Development Board has been courting hedge funds and asset managers from the Northeast to relocate to South Florida. They’ve had a lot of success: Since 2013, 60 to 70 hedge funds, private equity and wealth management firms have moved to Palm Beach County with many settling into West Palm Beach.

Now, the development board is looking to capitalize on changes in the new tax law that deal with state and local income tax deductions to transform Palm Beach into a Wall Street South.

But some tax experts and industry groups are skeptical as to whether the tax law changes will be enough to push a hedge fund or large investment manager to move to Palm Beach County from New York or Connecticut.

Phil Shaffer and his multibillion-dollar asset management firm, Halite Partners, is one those managers that sees opportunity in Palm Beach County. Shaffer’s firm, which is based in Columbus, Ohio, opened its second office in West Palm Beach late last year.

“I was impressed with the talent pool in West Palm Beach,” Shaffer said. “It took awhile, but it seems the top tier investment managers have discovered the area.”

Shaffer, named one of Barron’s top 100 financial advisors for seven consecutive years, adds that a high concentration of asset managers, a culture of entrepreneurship and shear wealth in the area make it an attractive destination to do business.

“I’ve done a lot of research on this and to me, nothing compares with West Palm Beach,” he said.

The initiative to bring hedge funds, private equity firms and asset managers to Palm Beach County began five years ago, said Kelly Smallridge, the president and CEO of the Business Development Board of Palm Beach County.

Smallridge said since the marketing campaign started in 2013 there has been a big uptick in callers interested in Palm Beach County. This interest included a few well-known hedge funds such as the one run by Paul Tudor Jones, who opened an office in the city of Palm Beach in 2015.

To recruit these companies, the public-private economic development agency had to create a new marketing campaign that highlighted some of the area’s private schools and office space with waterfront views.

“They don’t want incentives,” Smallridge said. “Many of them have very deep roots in the Northeast; they are concerned about uprooting their families.”

Provisions in the recently passed tax bill that cap federal deductions for state and local income taxes (SALT) at $10,000 could accelerate this move, some experts said. Removing these deductions would mean that residents in states with high state income taxes, such as New York and New Jersey, might not be able to qualify for these tax write-offs.

“Ending this deduction is a big deal,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.

Rosenthal said elimination of the SALT deduction could make Florida a more attractive destination for high net-worth individuals, as well as asset managers and hedge funds. He adds that there will also be more of a focus on state income taxes now that the tax law reduced federal income tax.

But Meredith Tucker, a manager at Kaufman Rossin’s entrepreneurial services department who works with entrepreneurs in tax planning, said she is skeptical there will be a mass exodus of hedge funds, asset managers and private equity firms from the Northeast to South Florida.

“I am not sure that the loss of state tax deductions is pushing them over,” Tucker said. “I haven’t seen it yet.”

She said the SALT deductions won’t have as big an impact as some believe because a previous tax provision, known as the Pease limitation, already put a limit on itemized deductions from state and local income taxes in the Northeast.

“Chances are they weren’t reaping the entire deductions,” Tucker said.

Bruce McGuire, founder and president of the Connecticut Hedge Fund Association Inc., which is a nonprofit advocating for hedge fund and private equity firms operating in Connecticut, said that Greenwich, Conn. still remains a top destination for these firms.

“Greenwich has a brand, a brand gives people comfort,” McGuire said. “In this day and age, where it is getting harder and harder to get capital, you don’t want to give potential investors any reason to be hesitant.”

There has, however, been some big name success in bringing investors down to South Florida. Notably, David Tepper’s Appaloosa Management, which is estimated to have about $17 billion in assets under management, relocated to Miami in 2016 from New Jersey. Forbes estimates that Tepper alone has a net worth of $11 billion.

Smallridge, of the Business Development Board, said the group will continue to make a big effort to attract more people like Tepper.

“The second that a major hedge fund makes the move to Palm Beach County it will open their eyes in a much bigger
way,” Smallridge said.