To make it very simple: Borrow money, get a 2nd portfolio that generates a lot of realised losses and unrealised gains, get a tax write off.
Simple example: I have 100 dollars, I go the 150/50 route.
Year one: I make 10 dollars on my main portfolio, I lose 8 dollars on the shortside (realised) and and make 9 dollars on the long side (unrealised).
Year two: I make 11 dollars on my main portfolio, I lose 9 dollars on the shortside(realised) and make 10 on the long side (unrealised).
Result: I invested 100 dollars and at the end of 2 years have 123 dollars. If I sell I have 17 dollars of tax loss carry over, so I pay taxes on 5 dollars worth of gains.
This is a gross simplification but that's the basic idea of it. AQR has an even more egregious product called Delphi Plus (that IMO is gonna eventually get IRS into their office) that can create losses that offset agains your ordinary income.
Comments
To make it very simple: Borrow money, get a 2nd portfolio that generates a lot of realised losses and unrealised gains, get a tax write off.
Simple example: I have 100 dollars, I go the 150/50 route.
Year one: I make 10 dollars on my main portfolio, I lose 8 dollars on the shortside (realised) and and make 9 dollars on the long side (unrealised).
Year two: I make 11 dollars on my main portfolio, I lose 9 dollars on the shortside(realised) and make 10 on the long side (unrealised).
Result: I invested 100 dollars and at the end of 2 years have 123 dollars. If I sell I have 17 dollars of tax loss carry over, so I pay taxes on 5 dollars worth of gains.
This is a gross simplification but that's the basic idea of it. AQR has an even more egregious product called Delphi Plus (that IMO is gonna eventually get IRS into their office) that can create losses that offset agains your ordinary income.