Shining brighter in light of global change
By A Paris — From the appeal of no income tax, to the supportive business community and the weather and lifestyle it offers, Florida has continued on its upward trajectory as an attractive location for financial and technology firms.
This past year has caused many to re-assess a large portion of their business practices – business continuity plans and virtual infrastructure, cybersecurity arrangements and onboarding processes were all up for discussion. Office space and business location is another of these key aspects under the lens.
In light of this re-examination, Florida is increasingly growing host to numerous financial services firms, including hedge funds, banks and other managers, moving parts of their business to the jurisdiction. Attracted by the business-friendly environment, firms are encouraging employees to make the move with the promise of no personal income tax and other lifestyle benefits.
“Florida is a very popular jurisdiction for hedge fund formation. Along with New York, Connecticut, California, and Texas, Florida ranks as one of the most popular hedge fund jurisdictions,” says Bart Mallon, co-founder of Cole-Frieman & Mallon.
Muhammad Akram, founder of the boutique CPA Firm, Akram & Associates, elaborates on the attraction of the jurisdiction: “Florida offers great incentives to alternative fund managers to launch a fund having no state income tax, wealthy retirees and attracting companies and business owners from expensive and high tax states.”
The founder of PBHFA.org, the Palm Beach Hedge Fund Association, David S Goodboy, lists the key attractions Florida holds for hedge funds and alternative asset managers. These are namely, “the zero state income tax, a rapidly expanding talent pool, exponential growth in the hedge fund & money management ecosystem, world class technical & office infrastructure, and of course great weather, restaurants, and lifestyle.”
The appeal of the sunshine state now glows even brighter in the wake of tax increases in New York. Legislation passed earlier in 2021 raised income tax rates on single filers with more than about USD1.1 million of income and joint filers reporting more than about USD2.2 million.
These changes mean top earners in New York City will be subject to the highest combined local tax rate in the country.
“Reasonable levels of financial regulations and laws are an area which attracts small emerging managers to Florida versus New York or California,” notes Akram.
“The local, regional, and state governments are extremely pro-business and supportive of the financial migration taking place,” Goodboy stresses.
Miami mayor Francis Suarez hit the headlines late last year after reaching out to offer assistance to Delian Asparouhov, a venture capitalist from Silicon Valley who was looking to re-locate to Florida from New York. The initial interaction over Twitter is said to have sparked a numerous conversations between Suarez and other venture capitalists, and tech and financial moguls considering a move.
“We are turning a moment into a movement,” Suarez is often quoted saying.
Goldman Sachs is one household name tipped to be relocating its business to Florida. The bank was said to be shifting part of its asset management business to West Palm Beach and according to reports, has been recently seeking volunteers to move. Real estate sources have said the firm is due to lease a floor and a half of the area’s newest office tower.
In addition to hedge fund managers, venture capitalists and banks, the fintech has been one of the key drivers of growth in Florida. A report by Pitchbook in partnership with the Knight Foundation and FIU outlines: “In 2020, 23 fintech deals made up 15 percent of the deal pie, up from 9 percent in 2019. Leaders were Miami’s Marco Financial, developing a trade finance platform and raising USD26 million, and Nymbus, a core banking software maker that raised USD12 million.”
This investment has been strongly supported by policy as the state embraced the notion of regulatory sandboxes to stimulate innovation and growth in the fintech space.
Andrea O’Sullivan Director of The Center for Technology and Innovation, The James Madison Institute, writes in a report: “Florida has been a leader in the advance of regulatory sandboxes, implementing a financial technology or ‘fintech’ sandbox in 2020, which [began] operations on January 1, 2021. The speed of Florida’s embrace of regulatory sandboxes has been as cutting-edge as it was admirable, as the state adopted its own fintech licensing relief just four short years from the time that the United Kingdom first initiated the concept of a fintech sandbox under its Financial Conduct Authority.”
The Financial Technology Sandbox, which was signed into Florida law in June 2020, enables financial technology innovators to “test new products and services within the consumer finance, payment instruments sellers, and money transmitter programmes. The supervised, flexible regulatory sandbox uses exceptions to specified general law and waivers of the corresponding rule requirements under defined conditions.”
On announcing that applications for the sandbox were open in January this year, Florida Chief Financial Officer Jimmy Patronis said: “I am thrilled that applications are now being accepted for a fintech sandbox innovator license. This is just another step forward for Florida to attract high paying, technology-focused jobs. Ensuring Florida remains a top destination for companies seeking opportunities to grow is one of my top priorities, and I look forward to the success of financial innovation here in the Sunshine State.”
Further, Commissioner Russell C Weigel, III, added: “The Office of Financial Regulation is committed to encouraging the growth of financial innovation while protecting Floridians from financial criminals. Thanks to the efforts of Governor DeSantis and CFO Patronis, Florida is on the forefront of financial innovation, and this fintech sandbox sends a great signal to the financial services industry that Florida is open for business.”
Initiatives like the inaugural Wyncubator Competition also help support innovation in Florida. Sponsored by Goldman Properties, in collaboration with City of Mayor Suarez, Venture Miami, and On Deck, the event seeks to identify the most innovative and disruptive tech startup and award that startup the opportunity to plant roots and thrive in Miami’s bustling Wynwood neighbourhood.
The prize includes a one-year, rent-free lease of a newly furnished office (for up to ten employees) in the heart of Wynwood, five complimentary parking spaces in the Wynwood Garage, five annual memberships to the Wynwood Walls, and a full merit scholarship to one On Deck programme.
The Covid-19 pandemic is a significant driver behind managers looking to relocate to Florida. In view of the transition to remote-working, many managers began re-thinking their work practices, including their office space needs and business location.
Akram comments: “The Covid-19 pandemic amplified the business and wealth migration to this sunbelt state due to remote working and flexibility offered to employees by US large Companies.”
In a piece entitled Back to the Future of the Office, Jefferies Capital Intelligence details how the pandemic has “allowed for the largest, unprompted, organisational behaviour experiment in history to take place.”
The firm notes: “One theme that began to emerge across the industry, and across the globe, was the idea of a ‘Great Migration’ from larger financial hubs to smaller cities, such as moves from New York to Miami. This trend was top of mind for many business decision makers and translated into the headlines, with references to top market leaders.”
Jefferies outlines the key drivers for these moves, including tax-saving Implications, lower real estate costs for increased square footage, a heightened need for outdoor space and warmer climates. Smaller city-funded business incentive programmes, living expenses and lifestyle changes for employees and diversity of talent recruited from non-traditional metro centres are other characteristics pushing for managers and financial firms to re-think their office location.
Investing in attraction
Steven Rosen, Senior Manager at Akram, stresses: “The state is investing in itself, which will not only attract new businesses, but also entice current businesses to stay. In order to retain its appeal, Florida needs to continue to be a tax friendly state and expand/grow the talent pool through education and incentives.”
The state has continued investing in enhancing its appeal. An example of this is the appointment of Melissa Krinzman. In February 2021, Krinzman was officially announced as the City of Miami’s first VC-in-Residence. This is a one-year assignment to support Mayor Suarez’s efforts to accelerate the growth of Miami’s tech community.
With the support of Knight Foundation, Krinzman will “work with growth-oriented founders, investors and community leaders to identify and execute on the lever points that will catapult them to success and strengthen Miami at large.”
Speaking at the 2021 South Florida Economic Summit, Danet Linares, executive vice chairman of Blanca Commercial Real Estate discussed the availability of jobs in the region: “Our unemployment fell to 8.2 percent from 12.6 percent from last September so all these companies coming in are creating good jobs and offering high salaries.” She says this is a clear sign that opportunities are abundant in the region, adding this will boost talent and investment within schools as well.
Within the same summit, Josh Schertzer, CTO of Enterprise Technology, Blackstone Group said: “The energy down here is picking up, specifically within the technology and financial ecosystem and there are opportunities here for everybody.
“There has been over a decade’s worth of work from local organisations which have been extremely supportive in guiding firms looking to extend or relocate their organisation to the Greater Miami area.”
Schertzer explained how he was pleasantly surprised at how willing others were to provide assistance: “The broader community and the tech ecosystem here is very open to helping each other build their business down here. Regardless of whether you’re a competitor or not, people are happy to lend a hand and make introductions.”