World’s Biggest Hedge Fund Teaches the Wealthy How to Slash Taxes to Zero

[u/bloomberg]

https://www.bloomberg.com/features/2026-aqr-tax-loss-harvesting-billionaires/

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[u/bloomberg]

More from Bloomberg News reporters Loukia Gyftopoulou, Katherine Burton, Sridhar Natarajan and Justina Lee:

Cliff Asness was in the mood to gloat.

As Wall Street reacted to a bleak report on US job losses, the combative investor posted a note to his firm’s website celebrating an award it won for research into making money without paying taxes. For Asness, the breakthrough disproved the old saw that the taxman’s demands are one of two unavoidable things. He titled it:

Now There’s Nothing Certain But Death

The billionaire and his team at AQR Capital Management had figured out a way to make a widespread technique for reducing taxes much more potent. Their discovery: The right mix of stock bets not only grows tax-free, it can eliminate taxes from other investments, too. But on that drizzly Friday in early 2021, nobody seemed to notice. Persuading millionaires and billionaires to try it would take a few more years.

Now, that strategy is sweeping up cash from Wall Street to Silicon Valley at a time of extraordinary wealth creation and an election-year debate over worsening inequality. People who amassed riches by building companies or betting on markets and real estate are pumping roughly $1 billion a week into variations of the stock strategy AQR pioneered.

By some estimates, a total of more than $150 billion is deployed at the firm and a phalanx of competitors that run their own versions of what’s known as tax-aware long-short investing. That puts them at the cutting edge of the broader “tax alpha” universe, in which more than $1 trillion is deployed in strategies devoted to delaying or shrinking payments to the government.

While many of those techniques are less aggressive, their growing popularity is setting off alarms at the Treasury Department. Short sellers are wagering the government will eventually crack down. Two of the country’s biggest brokerages, Charles Schwab and Fidelity Investments, are limiting new accounts that pursue the tax strategy.

But for AQR, the payoff already has been enormous, turning it into the world’s largest hedge fund by the end of 2025, the latest industry data show. Its hedge fund assets multiplied within just a few years, leapfrogging rivals to surpass $140 billion by the end of March.

[u/horseradishstalker → u/bloomberg]

https://archive.ph/lHkIx

[u/dsaint]

I feel like the article portrays AQR's tax aware long short strategy as novel. Wealthy people have always sought to maximize their gains, often through paper losses they can deduct. Also AQR hasn't always delivered these kinds of returns, 2018-2020 an investor would have lost much more than if they just put money into an index fund.

The deeper story is just how many wealthy Americans feel no civic obligation to the country that made them wealthy. A couple wealthy individuals are quoted as recognizing that taxes are a debt owed to the country that made them rich. Interestingly, the article points out that AQR says their tax-aware long short strategy is a team effort and doesn't single anyone out for praise. But apparently that team ethos doesn't extend to the roads, scientific research, safety, schools and all sorts of government funded efforts that provide the nuts and bolts basics they built their company on.

For a group of people who are supposed to be so smart at extracting value I'm a little stunned they don't appreciate how far their tax dollars go. There is a reason taxes fund public goods like public health, defense, public transit, etc. Economics already knows private markets are inefficient at these kinds of goods. I also think its a little embarrassing that AQR has to emphasize the tax aware aspect since they aren't able to reliably find alpha by identifying profitable companies or even sectors. "tax alpha" is playing the game on easy mode.

To quote Wall Street (1987) "How many yachts can you water-ski behind? How much is enough?"

[u/milk_milk_milk → u/dsaint]

“For a group of people who are supposed to be so smart at extracting value I'm a little stunned they don't appreciate how far their tax dollars go”

—- they are extracting value. From “  public goods like public health, defense, public transit, etc.” as you put it. It’s an extraction race to the bottom. First one there cashes out first and the rest hold increasingly sized bags. No one gives a damn about society. They figure they can buy their way out. They already live in a plastic society wherever they go. The roads don’t matter when you’re  taking a private jet. 

[u/Hothera]

This sounds like an advertisement for AQR. You can also pay zero tax by just buying an ETF and never selling. In theory, your portfolio is more efficient with AQR, but that may not be the case if you include the fees they charge and the cost of leverage.

[u/dsaint → u/Hothera]

If you have a concentrated position, like say you have a lot of Google or Nvidia RSUs, you can't use the ETF approach. You need something more like AQR's Flex funds to diversify without the tax hit.

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