1.  Hostile Legislation House Bill 7313 (formerly 6973)


Statement of Purpose: To Provide Tax Parity. 

Be it enacted by the Senate and House of Representatives in General Assembly convened:  That the general statutes be amended to impose a surcharge of nineteen per cent on investment management services fees, such surcharge to be effective upon the passage of similar legislation by Massachusetts, New Jersey and New York.

This Bill has been referred to The Committee on FINANCE, REVENUE and BONDING.  View Proposed Bill 7313 Here

CTHFA Position:

Testimony in Opposition to Proposed Bill 7313


Chairmen Fonfara, Rojas and Frantz, and Ranking Member Davis, thank you for hearing my testimony in opposition to HB 7313: AN ACT IMPOSING A SURCHARGE ON INCOME DERIVED FROM INVESTMENT MANAGEMENT SERVICES.


My name is Bruce McGuire, President of the Connecticut Hedge Fund Association.

1.    Connecticut is a global leader in investment management.  We are the 3rd largest center of hedge funds in the world with over 400 funds managing $750 billion.  This position did not come about through government programs, but through a combination of organic factors, including the state’s income tax policy. 

2.     Many CT firms or their founders came from New York, and may well have decided to set up their firms there.  They chose CT, in part because of the favorable relative tax climate.  Therefore, one could argue that CT’s investment management industry is populated by exactly that type of person that will move based on tax policy.

3.     If this surcharge on all investment management fees is approved, we believe that a certain percentage of firms (and / or their founders) will leave CT for other states.  Florida for example, is actively courting this industry.  The mere fact that this tax is being considered (and reported on in the international financial press) will have a negative effect on firms yet to be formed.  It should be noted that the Chinese would love to have a part of this industry in their country.  Please see this Bloomberg article, In China’s Greenwich Hedge Funds Live in Their Own Village

4.     The hedge fund industry is not just a handful of billionaires.  There are many middle income (by Wall Street standards) people working for these firms. In addition, fund managers support an entire ecosystem of “service provider” firms.  These include lawyers, accountants, fund administrators and commercial banks.  For example, Key Bank, Grant Thornton and Northern Trust, are all annual sponsors of the CTHFA.  They each have set up operations in Stamford or Greenwich specifically to cater to hedge funds, and all HAD PLANS to grow their staffs here.  SS&C is a good example of a fund administer that employs 7,500 workers, many of those in their Windsor, CT headquarters.

5.     This industry creates high value, high paying “knowledge jobs”.  The type of jobs that bright, ambitious college and business school graduates would love to stay in Connecticut for.  The CTHFA has co-hosted seminars with Fairfield U., Quinnipiac, UConn and Yale, and the interest from students has been intense.

6.     Hedge funds typically earn a 2% management fee on assets and a 20% performance fee (aka carried interest).  Management fees are already taxed as ordinary income, and performance fees, if that performance is tied to securities sales on securities held less than 1 year (becoming more common) are taxed as short term capital gains which are the same as ordinary income rates.

7.     This industry is more fragile than you think.  A big trend in money management is computer automation.  That is using computer programs instead of people to make trading decisions.  Bridgewater and AQR are both well-known “quant shops”.  Other firms like Tudor Investments in Greenwich are following this trend and downsizing their human staffs.  Please refer to this Forbes article The Quants Are Taking Over Wall Street

Computer algorithms tend to buy and sell securities rapidly and not hold them for over 1 year.

8.  CT should be looking to retain and enhance its leadership position, instead of taking a leadership position in correcting perceived deficiencies in the federal tax code.  We would encourage our state legislature to spend more time on programs designed to encourage fund formation in CT. 

Read WSJ 4/9/17 Article "What's the Matter with Connecticut?" Here

Read the WSJ's 1/30/17 Article Here

Read the WSJ's 1/31/17 Article Here

 2.  Connecticut's Leadership in Corporation & Business Law Commission

CTHFA Position:

The CTHFA's Matthew Eisenberg was invited to give testimony on the hedge fund business in CT.  After our testimony, Commission Chair, Christopher "Kip" Hall of Darien asked for a reasonable wish list of what the State can do to help attract and retain alternative investment managers to CT.

Watch Matt Eisenberg's 7/14/15 Testimony Here

3.  CT's "First Five" Program and its Support for Individual Firms vs. the Entire Industry Cluster

CTHFA Position:

CTHFA supports any state initiative that seeks to provide assistance to any private investment firm operating in CT.  As CT is the home of a significant private investment funds "industry cluster", CTHFA encourages the state to take a wholeholistic approach to its support.

The AQR Deal:

AQR Capital Management plans to expand its headquarters and operations in Connecticut over the next ten years - a more than $72 million project that will retain 540 jobs, create up to 600 new jobs, and significantly increase the firm's economic impact in the state.

The Department of Economic and Community Development (DECD), through the First Five program, will provide up to $28 million in loans and up to $7 million in grants to support the expansion project. State funding will be disbursed in multiple phases as the company reaches certain job creation and retention milestones. The economic incentives will support the firm in making anticipated infrastructure investments in Greenwich, including leasehold improvements and office space expansion, as well as technology enhancements to the firm's data center in Trumbull.

Read Governor Malloy's 1/9/16 Press Release of the AQR Deal Here

Read Comptroller Lembo's Opposition to the AQR Deal  Here

 The Bridgewater Deal:

Bridgewater Associates, intends to build a state-of-the-art corporate headquarters in Stamford. The $750 million project will be built along the waterfront in the Harbor Point development. To fully maximize the benefits under the agreement Bridgewater will create up to 1,000 high-level jobs within 10 years and also retain its current workforce of 1,225 employees. 

State support for the project will come from the Next Five program, which is administered by the Department of Economic and Community Development (DECD). The assistance includes:

  • A $25 million forgivable loan at a rate of 1% for a term of ten years to be used for the construction of the new facility

  • A job training grant of up to $5 million

  • A grant of up to $5 million for the installation of alternative energy systems

  • Up to $80 million in Urban and Industrial Sites Reinvestment Tax Credits. 

Read the WSJ's 6/1/16 Article Re "CT's Hedge Fund Bribe" Here

Read NY Times 5/26/16 Article Here

Read Governor Malloy's 8/15/12 Press Release of Bridgewater as a "Next Five" Company Here

Watch Governor Malloy's 8/15/12 Announcement of Bridgewater as a "Next Five" Company Here 

4.  Firms Leaving CT for Florida 

CT's poor financial condition and increasing tax burden is making domiciles such as FL more attractive.  With no state income tax, a warm climate, and continued improvement to its commercial and cultural infrastructure (especially in Palm Beach and Miami), FL is becoming an attractive domicile for financial services firms, especially those with an LLC structure, where personal income tax rates are very important. CT lost ESL to Florida in 2012, and firms like Tudor investment Co. have established personal residences and offices in the state.

CTHFA Position:

The CTHFA is working to impress upon state leaders the growing attractiveness of FL as a domicile, and how mobile financial services firms (especially hedge funds and private equity funds) are.  We encourage the state not to raise personal income tax rates and to think about creating an enterprise zone in Fairfield County to incentivize financial firms to locate there.

Read CNBC Article About Firms Moving to Florida Here 

Contact Us

Connecticut Hedge Fund Association, Inc.         PO Box 232, Greenwich CT  06836                                                                                       
Phone: (203)-662-0088
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