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Hedge Funds Are Cashing In Their Positions

Author: Aaron Jodka

By Aaron Jodka | NOVEMBER 2018


Hedge funds are making some noise in the Boston office market of late – though maybe not for the reasons they would like. Several funds have closed shop or merged with others or are in the process of doing so.

Nationally, hedge funds have had a few lean years during the bull market in stocks. Volatility, uncertainty, and pullbacks in stocks, bonds, and other asset classes tend to create conditions that allow hedge funds to shine. But a broad bull market has limited some of those opportunities, and recent hedge fund under-performance has caused outflows of capital at some funds.

In aggregate, more than 120,000 SF of space is coming to market as a result of hedge fund closures. Folger Hill Asset Management, Highfields Capital Management, Frontlight Capital, Three Bays Capital, and Convexity Capital Management lead the list of shuttering funds.

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What does this mean for Boston’s office market? In the end, probably not much. The total SF emptied is a drop in the bucket in our more than 70 million SF of inventory. Business is cyclical, and these funds happen to be going through a demanding time, leadership changes, or retirement. Tenant demand in Boston remains at record highs. and the high-quality build-out and premier addresses typical of hedge funds create opportunities for other firms looking for space today. However, a pure plug-and-play may be challenging. These spaces are generally perimeter offices and inefficient - not what tenants are looking for today. 

That said, this is indicative of a broader trend for finance employment in the city. It wasn’t long ago that Fidelity downsized in Boston and focused its growth on Texas, New Hampshire, and Rhode Island. More recently, Harvard Investment Management gave back space, and State Street consolidated its work space, exchanging more than one million SF of expiring leases for 500,000 SF of newly built product in the Seaport. State Street and Fidelity are both active tenants in the market today, along with Bank of America. These tenants have the scope to be market movers.

 

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