AQR understands the unique challenges faced by taxable investors and partners with clients to create solutions. Working at the intersection of prudent investing, tax, and estate planning, AQR is helping a:
Multi-Family Office improve the tax efficiency of their equity market exposure
Single Family Office rejuvenate the loss harvesting potential of an appreciated equity portfolio
Technology Entrepreneur diversify an appreciated single-stock position while offsetting gains from the liquidation of that position
Hedge Fund Manager transfer wealth to their heirs tax efficiently
Multi-Family Office create a tax-efficient fund-of-funds for its High Net Worth clients
Long/Short Equity Hedge Fund Investor diversify their portfolio and offset gains from other hedge funds
This list includes historical and proposed solutions for certain of AQR’s clients and prospective clients, selected on the basis of their portfolios or investments including a tax planning component. These examples are provided for informational purposes only and it is not known whether such clients or prospective clients approve or disapprove of AQR or its advisory services.
This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor. This material is not intended to be marketing. The recipient should conduct his or her own analysis and consult with professional advisors prior to making any investment decisions.
Risks of Tax Aware Strategies (Not Exhaustive)
1. Underperformance of pre-tax returns: tax aware strategies are investment strategies with the associated risk of pre-tax returns meaningfully underperforming expectations.
2. Adverse variation in tax benefits: deductible losses and expenses allocated by the strategy may be less than expected.
3. Lower marginal tax rates: the value of losses and expenses depends on an individual investor’s marginal tax rate, which may be lower than expected for reasons including low Adjusted Gross Income (AGI) due to unexpected losses and the Alternative Minimum Tax (AMT).
4. Inefficient use of allocated losses and expenses: the tax benefit of the strategy may be lower than expected if an investor cannot use the full value of losses and expenses allocated by the strategy to offset gains and income of the same character from other sources. This may occur for a variety of reasons including variation in gains and income realized by other investments, at-risk rules, limitation on excess business losses and/or net interest expense, or insufficient outside cost basis in a partnership.
5. Larger tax on redemption or lesser benefit of gifting: gain deferral and net tax losses may result in large recognized gains on redemption, even in the event of pre-tax losses. Allocation of liabilities should be considered when calculating the tax benefit of gifting.
6. Adverse changes in tax law or IRS challenge: the potential tax benefit of the strategy may be lessened or eliminated prospectively by changes in tax law, or retrospectively by an IRS challenge under current law if conceded or upheld by a court. In the case of an IRS challenge, penalties may apply.
The information set forth herein has been obtained or derived from sources believed by AQR Capital Management, LLC (“AQR”) to be reliable. However, AQR does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does AQR recommend that the attached information serve as the basis of any investment decision. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such. This document is intended exclusively for the use of the person to whom it has been delivered by AQR and it is not to be reproduced or redistributed to any other person. Past performance is not a guarantee of future performance.
There can be no assurance that an investment strategy will be successful.
The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation.
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