Illustration: George Wylesol for Bloomberg
Slashing Tax Bills for Rich Investors Is a $1 Trillion Business
Active managers are in a new gold rush, racing to develop strategies that can help wealthy Americans crush their tax bills.
David Hauser loves index investing and has little confidence that professional money managers can make winning bets with his cash. But he absolutely believes they can make some losing ones, and has just handed roughly $5 million over to a quantitative stock picker pledging to do exactly that.
Unlike most active strategies, the goal of the one picked by Hauser is not just alpha, or a return in excess of the broad market. It’s also “tax alpha,” a reduction in his tax bill that could prove even more valuable. By going long and short various shares, it aims not only to make money overall but also to generate losses along the way that can be offset against capital gains, thereby reducing what the entrepreneur owes the government.