How This Hedge Fund Billionaire Kickstarted Wall Street's Newest Tax Dodge

Key Points:

• The long-running stock bull market has created a tax challenge for wealthy Americans with concentrated stock gains and few losses to offset capital gains, leading to the rise of long-short tax-aware investment strategies that use leverage and shorting to generate harvestable losses.
• Assets in long-short tax-aware strategies have surged to nearly $200 billion from just a few billion five years ago, with AQR Capital Management and Quantinno Capital Management dominating the market, each managing roughly $70 billion in these strategies.
• Quantinno, founded by former AQR portfolio manager Hoon Kim in 2018, rapidly grew by targeting wealth managers with customizable separately managed accounts (SMAs), enabling high-net-worth clients to defer capital gains taxes while staying invested.
• Despite strong demand, concerns exist about risks including leverage-related market exposure, potential tax policy changes, and custodians like Fidelity and Schwab tightening rules and limiting new accounts due to margin loan risks.
• The strategy’s long-term success depends on sustained market gains, investor patience to hold accounts for life, and advisor support, as fees and complexity may reduce returns and create buyer’s remorse among some clients.