Re:Buffett's Alpha (2018) [pdf]
by lindig on Saturday November 02, 2019 @09:05AM
(#21427447)
I've read this story about where part of Renaissance Technologies's alpha is coming from: buying and selling individual financial instruments entails paying taxes on the gains of each trade. It's more lucrative to buy and hold a well-performing fund. So allegedly RT advises such a fund what to buy and sell and simply holds it - such that it would only pay taxes once it sells. I'm not working in finance and can't make an informed comment but if true, tax optimisation would be a big part of the success.
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Re:Buffett's Alpha (2018) [pdf]
by codecritic on Saturday November 02, 2019 @09:35AM
(#21427619)
Taxes on trading profits are not paid on each trade. A losing trade cancels out some profits from a winning trade, and tax will be assessed at the aggregate each financial year. Tax optimization contributes to the financial success operationally, but not is a core part of a quant fund's business.
My understanding was that there is a tax advantage (or loophole) in this construct of having influence over a fund's trading rather than doing the trades yourself and holding the fund instead. Would you argue there is no such advantage?
Re:Buffett's Alpha (2018) [pdf]
by codecritic on Saturday November 02, 2019 @10:16AM
(#21427815)
Yes there is an advantage. US investors could be assessed at long-term rather than short-term capital gain rate by using such type of structures. I simply argue that this is not a core part of a quant fund's business. Any capable hedge fund could hire lawyers to set up such structures.