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Public aid for hedge fund may pay off


Since when does a huge hedge fund need subsidies? Ray Dalio's Bridgewater Associates, the world's biggest with $130-billion (U.S.) under management, may get up to $115-million in help from the U.S. state of Connecticut to build a new headquarters.

Mr. Dalio's firm, which made him nearly $4-billion last year according to Absolute Return, hardly seems a needy recipient of aid. And on the surface Governor Dannel Malloy has far more pressing priorities. Connecticut recently cut its budget in order to help close a $200-million deficit. Yet there are potential benefits for the Constitution State.

There are 1,225 highly remunerated Bridgewater employees paying income tax. And as the world's most successful hedge fund in recent years, Mr. Dalio's firm stands to become a lot larger.

Without Connecticut's cash, places like New York's Westchester County, New York City and even parts of New Jersey might have lured Bridgewater with incentives of their own. The firm needs to move somewhere, Westchester isn't that much farther from its current Westport home, and many employees reverse-commute from Manhattan. There's an additional public motivation, if zoning permits and other hurdles can be overcome, to rehabilitate a grungy slice of Stamford waterfront.

There's even a basic financial rationale. Suppose Mr. Dalio does hire 1,000 more staff over 10 years - as he needs to if Bridgewater is to get the full benefit of $25-million of forgivable loans in the subsidy package - and each makes $200,000 a year. They'd all pay a $11,000 in state income tax. Eventually that's $11-million a year, a 10-per-cent annual return on the state's money. It's less risky, too, to subsidize retaining a business than try to attract new ones.

Still, it's a decent slug of Connecticut's cash that could be deployed elsewhere. And the big unknown is whether, without subsidies, Mr. Dalio really would take his firm elsewhere. It's no surprise that one of the best performing hedge fund bosses managed to persuade the state the danger was real.

© 2007 The Globe and Mail. All rights reserved.

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