Insights From Miami Hedge Fund Week

Twelve years ago, Thalius Hecksher was leading global business development at Apex Fund Services, a then fledgling Bermudan-based provider of fund administration services to mid-market asset managers, hedge funds, private equity GPs, and family offices. Hecksher had been hired by Apex in 2010 and was tasked with helping the company realize its aggressive global growth ambitions.

Operating out of Dublin, Hecksher had caught wind of the burgeoning hedge fund activity in Florida. At the time, Florida wasn’t even on Hecksher’s radar. Still, while running around LATAM and the US to drive growth in the Americas, he arrived at an epiphany that all roads seemed to lead to Miami. As Hecksher recounts: “on a trip back to Dublin in November of 2011, I had the hare-brained idea that I was traveling in the wrong direction!” Three months later, Hecksher and his family moved to Fort Lauderdale and Apex established an office in Miami, serving clients in LATAM and the newly thriving alternative investments scene in Florida.

Apex’s Florida launch garnered significant media attention, generating coverage in the New York Post under the headline, Wall Street flees New York for tax-free Florida, and a featured interview on CNBC. The publicity sparked a flurry of efforts to attract more hedge funds and financial services companies to Florida, including initiatives spearheaded by then Gov. Rick Scott and the Palm Beach County Business Development Board (“BDB”).

Long a destination for international conferences, Florida still lacked the organizational structure and community to welcome and develop its nascent financial services presence in 2012. In an effort to increase the flow of financial services firms to the area, the BDB created a branding campaign in 2013, declaring Palm Beach County as Wall Street South. The campaign highlighted the state’s business-friendly policies, governance, tax, and lifestyle benefits. The moniker has stuck, and now covers nearly all of South Florida.

In 2014, Hecksher hosted the first Miami-based Apex event at the chic Japanese restaurant, Nobu. Attended by 30 people, the event also managed to attract former FL governor Jeb Bush and a strong showing of lobbyists. Miami Hedge Fund Week was born!

FAST-FORWARD TO TODAY

Ten years later, Hecksher has launched the Florida International Funds Organization (“FIFO”). Hecksher’s company, Nexgen360, also merged with Gary Maier’s Fintova to form Fintova Partners, providing an expansive set of leadership, strategy, technology, operations, capital introduction, and business development services to the industry. Fintova Partners is also a founding member, contributor, and platinum sponsor of FIFO.

At an inaugural invite-only luncheon hosted at the Soho Beach House on January 29, FIFO announced its presence during the launch of the 2024 edition of Miami Hedge Fund Week. The list of attendees was impressive, representing a collection of notable industry leaders, fund managers, and service providers. This was followed by a co-sponsored roof-top kick-off mixer that attracted over 400 conference-goers to what has become one of the premier go-to events over the past 10 years.

Miami Hedge Fund Week now attracts an estimated 4000-5000 international participants. Starting in late January, these thousands of professionals, including investment managers, allocators, and service providers descend on Miami and its environs for a bustling schedule of conferences, dealmaking, and networking. The collection of events has evolved beyond its name. Spanning closer to two weeks, it now encompasses not only hedge funds, but also private equity, private debt, venture capital, and digital assets. And while Miami remains a central hub, these events also unfold in other South Florida locations and nearby tropical settings.

One standout event during this financial fiesta is the premier Global Alts conference hosted by iConnections at the elegant Fontainebleau. The conference draws luminaries from various domains, transcending finance to sports. This year’s distinguished roster of speakers included Ken Griffin of Citadel, Harvey Schwartz of Carlyle, and sports legends like Shaquille O’Neal and Eli Manning. Their insights and expertise contribute to the vibrant atmosphere of deal making, capital introductions, operational discussions, and networking mixers that collectively define Miami Hedge Fund Week.

Notably, there is also now a sizable local Floridian presence that reflects the tangible growth of Wall Street South. The movement accelerated during COVID, with broader acceptance (initially, by necessity; later, by choice) of remote-work policies. Post-COVID, however, there appears to be no immediate signs of abatement. And while numerous financial services firms have established at least a satellite presence in Florida, the 2022 decision by Ken Griffin to move Citadel’s headquarters from Chicago to Miami was a watershed moment.

Milling about the many conference events, receptions, and after-parties, a few key themes emerged at this year’s gathering.

FLORIDA IS A BURGEONING, IF NOT ALREADY ESTABLISHED INDUSTRY DESTINATION

First, as already highlighted, Florida has become, and remains a hotbed of activity within the alternatives sector, but also amongst more traditional asset and wealth management shops. This is not your grandparent’s Florida dominated by retirees with limited business opportunities! The state and municipalities have made conscientious efforts to attract business, and it is showing. Beyond the traditionally strong sectors of tourism and real-estate, the growth in financial services, technology, and professional services is booming, further supported by a strong pipeline of local university talent. Florida also now boasts the highest per-capita level of entrepreneurship in the nation.

Still, while increasing numbers of investment talent have migrated south, the demand for local operational and technology talent with domain expertise outstrips the current supply. Of course, as more wealth has migrated to Florida from the traditional metropolitan locations like New York, Chicago, San Francisco, and Los Angeles, the cost of living has also increased. This makes the Florida move less affordable, particularly for those in support functions that don’t typically command top compensation. The competition for such resources therefore remains fierce. This has caused some firms to reduce their local staffing expectations in these disciplines or, as more than a few managers expressed, to import so-called “New York” talent. Here, we believe firms like Fintova can help to provide the talent and services that such managers expect, without requiring the time, cost, and challenges of sourcing FTEs.

Further, navigating the industry network in Florida takes greater effort than in traditional markets, like New York. This is in part a byproduct of the still somewhat nascent state of the industry in Florida, despite its obvious and continuing growth. Though there is some concentration of industry in downtown Miami, pockets of activity also exist in Palm Beach County, Broward, Tampa, and Jacksonville. However, these represent more sparse geographies with limited public commuter transportation. Manhattan, in contrast, is far denser, with the neighboring regions of Fairfield County, Long Island, various New Jersey counties, and even Philadelphia readily commutable.

Given the increase in remote and hybrid work arrangements, however, the limited availability of public transportation is no longer the obstacle that it once was. New high-speed rail services, like Brightline, have also made inroads. Still, whereas cities like New York and Chicago facilitate more dynamic in-person meet-ups and networking, such activities in Florida require more advance planning. This is where groups like FIFO add tremendous value, acting as an aggregator of industry consumers, service providers, and sources of capital.

EVERYONE IS TALKING ABOUT AI

At the risk of stating the obvious, AI is a thing. While many are still trying to size the impact on individual managers and the industry at large, few debate the transformational power that it represents. Most industry participants have taken notice, and some are further along on their respective journeys towards adoption than others.

Still, the initial uptake thus far has mostly been incremental, with early adopters focused on the use of new AI capabilities embedded in SaaS tools. The application of more extensive model fine tuning and integration with contemporaneous, alternative, and proprietary data sources generally remains limited to the Tier 1 financial institutions and some systematic managers who have the technical competencies to pursue such efforts.

Many conference-goers expressed uncertainty about the readiness of their firms to truly utilize AI to its full potential, highlighting the need to first shore up even more basic technical, data, and operational infrastructure. These are legitimate concerns, and the heightened FOMO of managers and service providers, alike, reflects a more deep-rooted anxiety about being left behind.

As previously shared, I strongly believe that AI represents the Fourth Industrial Revolution. A comprehensive data strategy and data architecture are by far the most important prerequisites to pursuing more transformational AI, or any data-driven business model. At many firms, this remains the weak link and should be immediately addressed. I really can’t emphasize this enough!

Some ponder whether AI will mainly drive basic productivity gains, largely removing laborious manual tasks, or whether it will displace humans in certain functions. The answer is: yes, to both, but the former will precede the latter. Another series of questions and debate considers whether AI will ultimately supplant more premium functions, like investment managers.

Here, I believe the answers are less certain and possibly mixed, at least over the next 3-5 years.

Asset management has become increasingly commoditized over the last decade or two, especially with the expansion of diverse and lower-margin ETF products. The industry also exhibits herding around investment strategies that rarely differentiate performance. Moreover, 92% of active managers have failed to beat their benchmarks over the past 15 years.

To be fair, this analysis does not incorporate the possibility of higher Sharpe ratios that may lead to more favorable performance during periods of high market volatility and downturns. Still, it’s hard to imagine that a machine won’t ultimately be able to perform at least as well as strategies that deliver more beta than alpha, particularly in liquid markets. The risk of hallucinations in the near-term will likely necessitate a 4-eyes check prior to trade execution, but these shortfalls will also be solved. Managers that demonstrate more consistent alpha or operate in the private markets, however, will benefit from the application of AI in support of their investment theses and will be more difficult to supplant.

Finally, there are the questions of regulation. The EU has been more active in this area, having recently adopted the EU AI Act, whereas the US has thus far been less prescriptive. This is an evolving area of focus, and one that most participants will closely watch. While regulation will seek to ensure various safeguards, intellectual property rights, and consumer protections, I do not believe this will materially alter the trajectory of AI evolution and adoption.

WEB 3.0 IS BACK, OR NEVER LEFT

I will acknowledge that the prevalence of discussion around blockchain, digital assets, and crypto was welcome news. Particularly during the crypto winter, it felt like momentum had waned in this space, ultimately giving way to the fanfare of AI. Of course, these technologies are not mutually exclusive and can provide collaborative benefit. Still, I was pleasantly surprised to see the attention, dedication, and impressive activity amongst participants working with distributed ledger technology (“DLT”).

Keep in mind, the DLT journey is still largely in its infancy. AI as an area of R&D and later commercialization was born in the 1950s. In contrast, the eponymous creator of Bitcoin, Satoshi Nakamoto, created and launched the first reference implementation of the Bitcoin blockchain in 2009. So, AI has had a much longer runway, and it’s only recently that the public release of ChatGPT in 2022 emerged as a “killer app”, making generative AI accessible to the layperson. Notwithstanding crypto, blockchain still remains somewhat cumbersome and too technical for the average consumer to understand or use in a productive, daily capacity. The “killer app”, therefore, is still waiting to be invented.

Nonetheless, with the recent regulatory clearance of Bitcoin ETFs, and the anticipated future approval of Ethereum ETFs, euphoria appears to have returned to the crypto markets. Bitcoin’s quadrennial “halving” will also take place in March or April, reducing the mining output of new Bitcoin and therefore driving an inflationary cycle.

Still, most conference-goer talk centered on the impact of DLT on the digitization and tokenization of real-world assets (“RWA”). Here, I believe the opportunity of blockchain to become a next-gen ECN for private assets, in particular, is especially significant. Some of this is already happening, but regulatory, legal, and implementation hurdles remain to transition the many legacy paper-based processes, like titling, to digital mediums that can legally represent ownership. Beyond any domestic or international regulations and laws that may be adopted, most of these processes are implemented at the local, municipal level where technology budget and skills are typically in short supply.

In the meantime, blockchain can serve as a shadow book and can at least facilitate the valuation and trading of such assets, while providing interfaces to the physical world in which they exist. Of course, there are also ongoing efforts to leverage blockchain in areas, like supply-chain management and trade finance, that represent clear and impactful applications.

CONCLUSION

Miami Hedge Fund Week was truly eye-opening, demonstrating both the atmosphere and assemblage of industry participants that has transformed Florida into a growing financial services and technology hub. Attendees were highly qualified, curated, and actively engaged in business development, enhancement, learning, and support discussions. New associations, like FIFO, will help to foster and further develop the necessary infrastructure and network that can help propel Wall Street South to the next level. Amidst the fundraising opportunities promoted by the Global Alts conference, there was also active dialogue around consistent themes, like AI and digital assets.

I can’t wait to see what happens, next year! In the meantime, there’s no shortage of additional financial services events in Florida, with the upcoming Exchange 2024, the FFA Symposium, and InvestOps, to name a few.