The scions of wealth, the money managers and the hedge fund celebrities smile in passing as if all is right with the world, though appearances, of course, can be deceptive. Fidgeting alone before one’s fireplace on a dark winter’s eve can bring on the demons — chain-rattling doubts that keep even the stout-hearted from slumber here in fabulously rich Greenwich, Connecticut.
“Walking down the street, you’re going to reflect that things are fine,” observes Kevin Murray, chief operating officer of Rock Ridge Advisors, a Greenwich-based fund of hedge funds. “In private, I think people are worried.”
And why wouldn’t they be? Eight of the Hedge Fund 100 — Alpha’s annual global ranking of the biggest single-manager hedge fund firms — are headquartered here, less than an hour by train from New York City: AQR Capital Management ($10 billion in assets under management at the end of 2007), ESL Investments ($13 billion), Lone Pine Capital ($18 billion), Shumway Capital Partners ($6.6 bil-lion), Silver Point Capital ($9.3 billion), Tontine Associates ($7 billion), Tudor Investment Corp. ($16.1 billion) and Viking Global Investors ($9 billlion).
Combined, their $89 billion in assets under management on December 31, 2007, has since shrunk by tens of billions of dollars, as the hedge fund industry has been battered by a wave of losses and investor redemptions. A hundred additional hedge funds operate in and around Greenwich. Among them is fund of funds Fairfield Greenwich Group, one of the biggest potential losers in the Bernard Madoff scandal (see “What Were They Thinking?” on page 32). Fairfield, founded by Walter Noel Jr., a prominent Greenwich citizen who has a house in its Round Hill neighborhood, reported investing — and presumably losing — $7.5 billion with Madoff.
The tide has turned hard against hedge funds, which streamrolled along for many years as the town’s biggest and fastest-growing industry. One way to see into the turmoil is through the commercial real estate market, about 85 percent of which is hedge fund–related. John Goodkind, managing principal of Newmark Knight Frank, a New York–headquartered real estate advisory firm, predicts that lease rates will drop by as much as 25 percent this quarter, from $57.75 per square foot in the third quarter of 2008 (rates in nearby Stamford, by comparison, were a relative bargain at $36.60 per square foot).
“There continues to be an almost daily flow of hedge funds that have taken space recently and in the past five years and are putting space on the market, either all or a portion of their occupancy holdings,” Goodkind reports.
The residential market also offers big clues. RealtyTrac, a real estate data service based in Irvine, California, reported ten Greenwich residential foreclosures from January through November 2008; there was just one in all of 2007. RealtyTrac says defaults are on the rise too, with more — 145 — through the first three quarters of 2008 than in all of 2007 (135).
This, in fact, is the town’s first buyer’s market in a decade, and commitment is hard to come by. “We see a lot more transactions with the buyers backing out,” says Nancy MacDonald, a regional senior vice president with Coldwell Banker, who cites a lack of confidence in the economy among buyers in the higher end of the market and difficulty organizing financing for those at the lower end. Though the Coldwell Banker annual home price comparison index has ranked Greenwich the second-most-expensive real estate market in the U.S. (after La Jolla, California) for two years running — the average price of a hypothetical four-bedroom, 2,200-square-foot house was $1.787 million in 2008 — average days on the market through October had increased by almost 25 percent over 2007, to 210 from 169.
Total sales were down as well: In 2008, 397 deals closed; that was 232 fewer than in 2007. Prices, as a result, have dropped. The Helmsley estate, one of the few remaining old estates on the market, was listed last April for $125 million. In October its price was cut to $95 million, but the 40-acre spread, which includes a 22,000-square-foot mansion built in 1918, still hadn’t sold as the new year began.
“It’s a humbling time for all,” Goodkind says.
Greenwich, population 62,000, is vulnerable to humbling because, despite its stature as one of the biggest finance centers in the world, its economy lacks diversification, even if it has an absurd amount of wealth. It is home to some of the most well-heeled hedge fund personalities, including O. Andreas Halvorsen of Viking Global Investors, who made $520 million to rank tenth last year on Alpha’s list of the 50 best-paid hedge fund managers. Other residents include Stephen Mandel Jr. of Lone Pine Capital, who made $710 million (eighth on the list) and Steven Cohen of SAC Capital Advisors, who was No. 6 with $900 million (SAC is in nearby Stamford, but Cohen lives in Greenwich). The original big Greenwich hedge fund manager, Paul Tudor Jones II, who — like Cohen — is an Alpha Hedge Fund Hall-of-Famer, made a mere $300 million (31st in the ranking).
Greenwich is shaped in part by hedge fund largesse — in pay, in houses, in car collections and in lifestyle. And it feels the pain when hedge funds suffer. City hall, for example, is having sudden difficulties — a $10.5 million budget shortfall for the 2009–2010 fiscal year, partly because of a drop in tax revenue from the sale of real estate. The town has almost always been well off. In the mid-1800s it was a resort for rich New Yorkers, and by the turn of the century, it had become an estate community of mansions replete with servants’ quarters, tennis courts, stables — the many accoutrements of the moneyed classes. Jones arrived in 1994 and bought one of those old houses perched above the harbor on three acres of land.
He paid $11 million for the place, but four years later razed it and built a bigger house. Tudor Investment is housed today in a mansionlike building on King Street, surrounded by rolling lawns and stone walls and operating beneath the radar, as many hedge funds here do, working in quiet office complexes or quarters that look more like fancy houses than hubs of trade and finance.
Other funds followed Tudor to Greenwich. What once was a morning run of commuters into New York began to go the other way. Rush-hour traffic jams into Greenwich became a staple of life, and hedge funds took up quarters everywhere, many in anonymous office buildings identified only by address — Two Greenwich Plaza, 55 Railroad Avenue, 200 Greenwich Avenue — or discreet brass plaques with the phrase “capital management” somewhere in the name. Men in well-cut business suits filled the Starbucks on Greenwich Avenue and stood in line at the delis.
“Ten years ago you’d walk down Greenwich Avenue and, if you were a hedge fund guy, you were an anomaly,” Murray says. “Today you walk down Greenwich Avenue and BlackBerries are buzzing and everyone’s 30.”
Managers (and their spouses) were drawn for any number of reasons: the People Like Us syndrome, the many affluent private and public schools, the favorable tax structure (the town itself, though it has probably been tempted to do so, doesn’t tax hedge funds and does not levy income or school taxes on residents), the ten country clubs, the polo club, the nine yacht clubs and the 15 garden clubs. The good life and the good times were marred only from time to time. Long-Term Capital Management, which turned out to be notoriously short-term, blew up in 1998, four years after its launch. Founder John Meriwether promptly scraped a new fund together in LTCM’s former quarters at One East Weaver Street, but JWM Partners is hard-hit these days; it announced the loss of four of its seven partners in December, as well as plans to lay off ten of 35 staff members this year. Amaranth Advisors, which ran $9 billion at its peak in 2006, exploded shortly thereafter; all that’s left are the memories.
But prosperity was the norm, and Greenwich Avenue, the town’s main drag, flourished alongside the hedge fund set. Among the high-end shops that line the street are Brooks Brothers, Lacoste, Lily Pulitzer, Marc Jacobs, Saks Fifth Avenue and Tiffany. Richard’s, a locally owned store, stocks Hermès and Prada. Shopping is an important pastime in Greenwich, but business is slow these days.
“We have a lot of people in Greenwich who still have the funds to spend,” notes Mary Ann Morrison, president and CEO of the Greenwich Chamber of Commerce. “They are feeling, ‘You know what, I shouldn’t spend it because I don’t know what’s coming.’”
Greenwich car dealerships — which cater to the luxury market — are overstocked with Mercedeses, BMWs and Lexuses. Among potential buyers who can afford, say, a $132,500 Aston Martin Vantage V8 Roadster or a $425,000 Rolls-Royce Phantom, few are taking the plunge, says Patrizio Torregiani, Internet sales manager at New Country Porsche, where sticker prices start at $50,960. “There’s less big money and hedge fund manager types coming in and ordering a very expensive Porsche,” adds Torregiani, who says he sold eight cars nonetheless in December.
Restaurants are also feeling the pinch. L’escale, a popular dining spot at the Delamar — a Miami Beach–style waterfront hotel that lists its Belvedere Presidential Suite at $1,700 per night — recently rolled out a new line of cocktails based on the seven virtues and inspired by hard times. Anshu Vidyarthi, the restaurant’s managing partner, says the best-selling of the seven virtues is Faith, a concoction of lychee purée, raspberry liqueur and vodka. L’escale is also offering one third off its winelist prices on Monday nights.
Jean-Louis Gerin, the owner-chef of Restaurant Jean-Louis, who has lived and worked in Greenwich for 25 years, says he began tweaking his menu a year ago when he saw what was coming. Front and center at his place now is French comfort food — sautéed filet mignon, for instance, with “my grandmother’s potatoes au gratin” — always a favorite with patrons when times get tough, he says, though “tough” often depends on one’s point of view (Gerin’s Web site prices the filet-and-potato entrée at $40). The new menu has by-the-glass wine pairings so diners don’t have to buy a whole bottle. “They’re buying the less-expensive bottle, especially if it’s a corporate account,” Gerin says. “They want to go back to the office and make sure everybody understands that they too are concerned about the company.”
Much of the change, he says, is rooted more in self-consciousness than in distress: “It’s not a question of change of wealth. I think it’s a question of being more careful and just not wanting to be seen as being excessive.”
At Consigned Couture, on the other hand, business is brisk, and here — especially for the precariously well-to-do — is a snapshot of the fragility of some wealth. Dolly Ledingham-Savage, the shop owner, presides over a full stock of major-label everything. A fur coat that retailed for $120,000 is priced at $14,000; a $7,000 Chanel black velvet evening suit is $950. Ledingham-Savage says she accepts major labels only. What’s keeping her busy these days is buying. “I’ve had four months of being booked solid with consignments,” she says. “This year is the best-quality merchandise I’ve ever had.”
Surely, selling the family jewels is a blow to those who have jewels to sell, just the sort of possibility that can keep one up at night. Pity the sleepless rich — something is rotten in Greenwich.
All things being relative, however, this once-brisk center of all things hedge fund will no doubt remain the wealthy and privileged enclave it always has been. Most struggling managers will survive another day to perhaps build another mansion and buy another Maserati.
There’s still lots of money in town.
