When is tax-aware long/short not the right choice?
Consider your options... 130/30 "loss realization potential is very limited"
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How do you see me now?
Now that I’m a little bit older, older
Nevermind the albatross
Smoldering on my shoulder, shoulder
Albatross
I think of a concentrated asset (stock, bitcoin, liquid private stock, small business, etc.) as an albatross. It’s well past the fun stage (I’m rich!) and is now a huge weight, a curse.
The strategies for derisking fall roughly into these buckets (with a different set of solutions for situations other than public stock):
Sell it
Gift it: Direct, private foundation, DAF, CRUT/CLUT, etc.
Hedge it: Collar, put, etc.
Exchange it: Exchange fund, opportunity zone fund, 351 into an ETF, etc.
Wrap it: Tax-aware long/short (possibly paired with variable prepaid forward)
The solutions vary in how quickly, effectively, liquidly, and riskily they de-risk and glide to the desired, diversified state.
Case in point, the oh-so-popular tax-aware long/short separate account solution, which wraps a concentrated position with long and short (mainly) market-neutral extensions that hopefully capture some relative value alpha and harvest tax losses in up and down markets.
Here’s a two-sentence, two-image refresher for anyone needing to get up to speed.
When is that the wrong solution?