Pine River Capital Management, the $11 billion credit-focused hedge-fund firm that got its start in a Minnesota cabin, is expanding into the Lone Star State in January, and one of its top portfolio managers will be based there.
Steve Kuhn, who heads up Pine River’s head of fixed income trading and is the portfolio manager for the firm’s high-performing Pine River Fixed Income Master Fund, will relocate from the firm’s New York offices and will split his time between Austin and New York. The firm’s senior marketer, Frank Benevento, will lead the new Austin office. Pine River’s fixed income hedge fund, which manages $3.5 billion in assets, is up a stunning 32 percent through November and has delivered an annualized return of 41 percent over the past five years.
The move is partly a way to tap into Texas’ thriving network of hedge fund investors, but it will offer cost benefits as well thanks to the state’s business-friendly tax climate. Pine River, headquartered in Minnetonka, Minn., plans to staff the office with 10-12 portfolio managers and marketing and support staffers. The rest of the team will be built up through internal transfers or new hires, Kuhn says, with the firm eventually looking to add portfolio managers, analysts and additional marketing and support staff.
Pine River will not be the first hedge fund to set up offices in Austin. Whitebox Advisors, a mutistrategy hedge-fund firm that that also has headquarters in Minnesota, opened an office there in 2010. Paul Twitchell, the firm’s head of event strategies, heads up the Austin office, along with five other partners and portfolio managers.
Kuhn thinks that Austin could become one of the next financial hubs, thanks in part to the lower tax rates but also because of an existing network of hedge fund investors and a supply of untapped investment talent.
“There are a lot of talented people in that area that don’t typically get access to getting jobs at hedge funds,” says Kuhn, who notes that there are many universities in the city, and elsewhere in Texas, that offer good business programs.
Austin and the broader state are also home to some large institutional investors and family offices that have been investing in hedge funds for some time or are starting to now. The $110 billion Teacher Retirement System of Texas, for example, can invest up to 10 percent of its assets in hedge funds, while the $17 billion Texas Municipal Retirement System has a target 5 percent allocation to absolute return strategies that it hasn’t yet filled.
Austin is also an attractive place to live, given its fair weather, numerous colleges and its cultural and intellectual bent, says Kuhn. And it could prove to be alluring to some California-based managers looking to avoid being subject to Proposition 30, which passed last month and increases taxes on the highest earners ($250,000 and above) in the state.
Once Pine River establishes its offices in Austin, Kuhn is considering starting up a program similar to Bill Ackman’s Pershing Square Challenge. In Ackman’s competition, held at Columbia University’s business school, teams of students choose a stock that would make a good value investment and create a presentation outlining why. The winning team gets $1000. Kuhn says he envisions starting up a program like this at the University of Texas, or another university in the state, and limiting it to stocks of companies based in Texas. He is also considering partnering for this initiative with other hedge funds in the city or state.
Pine River has $6 billion under management in hedge fund assets, $2 billion in separate accounts with longer lockups and $3 billion in long-only mortgage real estate investment trust strategies. In addition to its offices in Minnetonka and New York, the firm has satellite offices in San Francisco, London, Hong Kong and Beijing.
