Tax-aware long/short AUM update "rampant growth"
Could tax-aware long/short supplant direct indexing as SMA darling?
Tax-aware long/short AUM update “rampant growth”
At Nuveen/Brooklyn’s nPowered conference in Manhattan earlier this week, all advisers wanted to talk about with me was tax-aware long/short.
The two-sentence explainer of tax-aware long/short is core public equity exposure with roughly market-neutral margin and short portfolio complements. The strategy generally aims for pretax alpha and substantial realized losses.
I’ve written maybe 20 articles on tax-aware long/short exploring various nuances.
Tax-aware long/short is generally available in the following flavors:
Separate account vs. limited partnership/hedge fund
Low leverage (e.g. 110/10) to high leverage (e.g. 300/200 and more)
High/calibrated tracking error vs. low/incidental tracking error
Beta vs. market neutral
The “right” solution depends on family circumstances, risk tolerance, and the problem to be solved. Notable cases:
Tax-neutral divesting of concentrated public equity positions
Post-exit alpha and tax smoothing
Alpha and cumulative losses for transitioning between strategies
Many, many more use cases
Tax-aware long/short is an incredible planning tool.
It might not solve all problems - investors/advisers should carefully weigh their circumstances to make sure there’s a fit - but the AUM growth (below) reveals that advisers are smitten.