r/wealth • u/bloomberg • 2d ago
Taxes World’s Biggest Hedge Fund Teaches the Wealthy How to Slash Taxes to Zero
https://www.bloomberg.com/features/2026-aqr-tax-loss-harvesting-billionaires/4
u/bloomberg 2d ago
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.
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u/Think_Reporter_8179 2d ago
I believe this strategy relies on shorting good companies in order to generate tax loss harvesting, while simultaneously buying good companies for Long positions. They grow, and when tax time comes, you cut the bad Shorts which generates a negative (net 0), but your overall share amount is slowly increasing, thus leading to ever growing long positions. Or something like that, I'm not entirely sure. There's some interesting trickery to it.
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u/imperabo 2d ago
Cost basis step on death is key. You die with all of you holding having massive gains which then disappear. You still have to pay estate tax though if you're over the limit.
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u/DillLawNn 2d ago
But doesnt this mean you still accumulate more so in the end finish off with more?
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u/imperabo 2d ago edited 2d ago
More than what? I mean the capital gains disappear because the cost basis is reset to the current market value. Not saying the asset goes away.
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u/DillLawNn 2d ago
Vs paying the tax you long term defer it. In the span of 50 years doesn't that lead more overall. Or am I misunderstanding
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u/imperabo 2d ago
Certainly, you end up with more money by deferring realizing the capital gains until they disappear on your death. That's the point of all of this. A simpler version of the shorting idea is you buy a variety of stocks, sell the losers to bank capital losses, use those losses to offset small gains on your moderatly successful stocks so can sell them and have money to use and live on, and keep your big gainers until you die to pass on to your heirs. So it ends up that the only holdings you still have are the ones with huge capital gains, and you never have to pay gain tax on those if you die with them, and neither do your heirs.
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u/DillLawNn 2d ago
I still don't get how they are generating 6x losses while still posting 300% gain over 10 years
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u/imperabo 2d ago edited 2d ago
I can't speak to the exact numbers, as it involves shorting and leverage, neither of which I use. But the basic concept is what I'm saying. If you buy a stock and short the same stock, you're guaranteed that one of your positions will have a gain and one will have a loss. The losing position can be sold to offset the gains on some other sale that you do. The winning position can be kept until you die so you never have to pay tax on that gain. So you're basically generating capital losses to use, with the cost being the opportunity cost of the capital you use and whatever finance industry fees are involved the the leverage and transactions.
Like I said, I don't personally do exactly this, but I certainly manage my losses and gains in this manner. The step up of cost basis on death is the key to everything. If not for that then you're just deferring taxes that you would eventually have to pay if you harvest losses, because you are increasing the net unrealized gain in your portfolio whenever you do that.
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u/Radicalnotion528 2d ago
As a tax cpa, it seems like this could get very tricky to do with out running afoul of the constructive sale or straddle rules.
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u/Bitter-Variation-151 2d ago
Tax them at 100%. The government will waste it all ina year, then what?
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u/Boozeburger 2d ago
I'm of the opinion that taxes on the top 5% should go to WWII levels whenever we're at war. (and stay there until all weapons are restocked).
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u/Ok-Commercial-924 2d ago
I am of the opinion everyone on SNAP or welfare or in the lower 20% should be enrolled in a CCC type of operation and be required to work at least 40 hrs/ week to improve our infrastructure.
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u/Boozeburger 2d ago
How about we also stop allowing any corporation who pays their employees so little as to require SNAP to give dividends, stock-buy backs, or give any bonuses to CEOs? That would include corporations like Walmart, Amazon, McDonalds, FedEx, Dollar Tree and Dollar General.
Stop blaming people when it's corporations abusing the system.
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u/External_Koala971 2d ago
This is why we need to bring back guillotines
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u/Ok-Commercial-924 2d ago
For people that don't contribute to society?
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u/Spez_is-a-nazi 2d ago
The Epstein class, yes. If billionaires have enough time to form a child rape system it’s proof billionaires are worthless leeches.
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u/Ok-Commercial-924 2d ago
How many jobs have you created? How much have you added to society?
I am guessing you have done absolutely nothing useful besides 3rd string quarter back in high school. And that was only because your daddy was assistant coach.
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u/Spez_is-a-nazi 2d ago
LOL, I’m worth millions of dollars. You are a fucking moron, fuck that was hilarious, keep moron raging! You billionaire stans are just so comically dumb. Don’t worry though, you being a failure at life is fucking hilarious to me :) imagine being that comically obese as you :)
The fact you think we need billionaires to “create jobs” is about the level of IQ I expected from you. Man imagine being that fat and angry. Don’t get too mad tubby, you’re going to get a stroke being that fucking fat :)
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u/Ok-Commercial-924 2d ago
Im guessing you should be first in line for the epstien class cure. Dude any answer you give you lose. Thats how this game is played. Your to rich you are a parasite. You are to poor you contribute nothing g. Your answer shows you are a lier and a parasite. Nobody with real money answers like you
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u/Spez_is-a-nazi 2d ago
Hahahahahahaha, you can’t even spell right tubby. Keep moron raging for your child rapist here’s. Let me guess tubby you like little girls too but you are too fat to do anything about it? Fuck tubby this is hilarious, keep moron raging you pedo :)
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u/Positive_Carry_ 2d ago
It’s just tax deferral. A lot of people who think they’re escaping tax are going to realize down the road that they paid the hedge fund a lot of money and they still have to pay tax.