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Exit Of Hedge Fund Billionaire For Florida Raises Question: Who's Next?

By DAN HAAR

June 07, 2012

Two questions loomed as word spread Wednesday that Edward S. Lampert, the billionaire who controls Sears and Kmart, had moved from from Greenwich to Florida, along with his hedge fund.

Why did the 49-year-old financier leave? And will other hedge funds follow?

Lampert and his firm, ESL Investments Inc., are not giving any answers other than a brief filing with federal securities regulators Wednesday. ESL had moved to Miami as of June 1, the filing said.

For Greenwich and the state of Connecticut, Lampert's presence as the state's fifth richest person was more than just a matter of bragging rights. The hedge fund industry in lower Fairfield County generates a large share of the state's tax revenue — directly, through income taxes of its gilded-age managers, and indirectly through their spending and investments.

The timing of the move, coming in the first year of higher state taxes on the rich, was lost on no one. Some of the town's most prominent residents said Wednesday that it's widely believed taxes were at least partly behind the decision by Lampert, whose net worth was pegged at $3 billion by Forbes last fall.

Aside from the success of his firm, which he founded in 1988, Lampert is known publicly for a 2003 kidnapping. After he was abducted from the garage at his office, he spent 30 hours in a Hamden hotel room, tied up and blindfolded — and negotiated his own release. His captors were arrested after one bought a pizza in New Haven with one of Lampert's credit cards.

"I'm saddened by the announcement," said Sen.L. Scott Frantz, a private equity investor in the town. "Ed is a great guy and he has a wonderful family. The contributions that he and his family have made to the community here have been great."

Frantz said he last saw Lampert about 10 days ago and had no indication a move was in the offing. Describing Lampert as "more of a libertarian than anything else," Frantz said he heard secondhand Wednesday that Connecticut taxes were the reason.

So far, ESL, which had assets of $10.6 billion according to recent filings, is an isolated example of a hedge fund fleeing the state. Still, it raised concerns about a possible trend.

"We can't afford to lose them here in Connecticut," Frantz said, but he added, "If tax rates do go up again, I think there's definitely a possibility."

The top personal income tax bracket increased to 6.7 percent last year as the state worked to fill a $3.5 billion budget hole. And this year, the debate over how to tax hedge fund payouts — as dividends or personal income — is a hot topic inWashington, D.C.Frantz, a Republican, suggested that higher federal taxes could cause hedge fund managers to think harder about their overall tax picture, casting more light on Connecticut's taxes.

Ned Lamont, a Greenwich Democrat who ran for governor against Dannel P. Malloy two years ago, said people in finance need to be "near the nerve center," and that means Fairfield County and New York, not Florida.

"Do I think this is the first domino? No, I really don't," Lamont said.

Lamont said a lot of Greenwich people talk about moving to Florida for lower taxes, and of course some have offices there.

"I wouldn't go to Florida to save 5 percent in taxes," Lamont said. "I consider it a form of premature death down there."

Lampert, who worked at Goldman Sachs before launching ESL, according to Bloomberg News, has a house at Field Point on Long Island Sound. His property is worth $25 million, the Greenwich Time reported — but he's upgrading to an estate worth $40 million on Key Biscayne, according to the Wall Street Journal.

There was no indication that Lampert's Greenwich estate was for sale. But it seemed clear that the staff of his hedge fund was asked to make the move. Wednesday's filing said William C. Crowley, who was president and chief operating officer of ESL, had left the company.

"Mr. Crowley determined he was unable to relocate to Miami for personal reasons," the filing said.

A spokesman for ESL did not return calls Wednesday. Bloomberg News said Crowley joined ESL in 1999, and, citing a recent filing, said the firm had 19 employees.

"I would not be surprised if he gets the bulk of people to go," Lamont said. "People are paid an awful lot of money…. usually you follow the CEO."

Even without solid evidence that taxes drove Lampert to Florida, the issue erupted Wednesday.

"We are all aware that the changes to the tax structure in Connecticut last year have given many people pause as to whether this is the best place to do business and reside," said Greenwich First Selectman Peter Tesei, whose background is in trusts and estates. "I am concerned about the departure of Mr. Lampert and his firm, and would ask the state of Connecticut to take another look at its policies."

Tesei, a Republican, said there has been rising talk among town residents about fleeing, but no wave of departures. One factor for older residents is a state estate tax — which Florida does not have.

As for Lampert, who turns 50 next month, "he's young and he doesn't think he's going to another world for another 60 years," Frantz said, "so that's probably not part of the equation."

Courant Staff Writer Kenneth R. Gosselin contributed to this story