When Lifestyle Determines Location

By Maria Trombly | Securities Industry News | June 26, 2006

A visitor to central Massachusetts would perceive Worcester as a nondescript, somewhat faded industrial town, a far cry from a financial capital. But that's where you'll find Cutler Capital Management, a five-person hedge fund with $33 million under management, primarily convertible securities, real estate investment trusts and dividend-paying equities.

"There are a tremendous amount of different services that you can outsource," explains president David Grenier. The prime enabling technology is the Internet, he says, and much of what Cutler needs, from research to accounting, is delivered online.

Cutler chose Worcester for a simple reason: It's close to employees' homes. Grenier says, "It's become easy to operate a hedge fund from your personal residence if you choose to do that." He prefers working in an office, where his team can share ideas in person.

Cutler uses Bear Stearns & Co. for fund administration. Although Bear Stearns also offers middle-office services, Grenier says the fund doesn't currently need that level of support; it prefers keeping those functions in house. Cutler also handles the publishing of its quarterly newsletter, which Grenier calls "our one opportunity to convey and communicate the way we feel about the market. I wouldn't leave that up to another provider." But the Cutler Web site is custom-built by a local marketing firm, which Grenier declines to name.

Grenier is in the process of moving his accounting from Excel spreadsheets to the Partner platform from San Francisco-based Advent Software. "I'm expecting it to reduce my overall accounting expenses," he says. "It will also allow me to give more information to my partners quicker. I'm very confident in the spreadsheet that I developed, that it has all the right information, but I'm going to save time by having Advent do it."

Cutler is hardly the only hedge fund to select its headquarters based upon its managers' personal preferences. According to Peter Stockman, head of PA Consulting Group's capital markets practice in New York, hedge funds are locating further and further from major financial centers. The migration to Greenwich and other Fairfield County, Conn. locations was the first wave, and "the north shore of Long Island is another place where many large and sophisticated hedge funds are operating, essentially out of people's homes," says Stockman.

It takes fewer people to manage a hedge fund today than it did five years ago, he explains, which means that a fund doesn't have to be based where all the employees are. In addition, better communication technologies are making distances less relevant.

That doesn't apply within the hedge fund itself, where sharing an office aids strategic interactions. "A hedge fund has the look and feel of a trading operation," says Stockman, "and the frequency and volume of communication between people is very high, moment to moment."