Tax-aware long/short strategies like the 130/30 (get up to speed here) require margin and shorting. It works like this:
Investor contributes $100 cash or securities
Manager borrows $30
Manager shorts $30
The gross portfolio is $160 (= $100 + $30 + $30).
Borrowing isn’t free. It usually costs Federal Funds Rate + X
Investors who borrow and sell shares receive…