TAX AWARE HEDGE FUND long/SHORT, ORDINARY income k-1 tax deduction, Trader fund
An investment in a tax aware (TA) hedge fund long/short strategy is a long-term illiquid investment (typically one-year lock up) that is made with after-tax cash. The goal of the tax aware hedge fund partnership is to provide after-tax returns for partners in the fund while potentially offsetting ordinary income via ordinary losses through the Schedule K-1 Partnership.
Glover Park Wealth Management, LLC is a SEC registered investment adviser (RIA) with access to Tax-Aware Hedge Fund Strategies. These strategies can typically only be purchased through a registered investment adviser (RIA) such as Glover Park Wealth.
Charles Schwab & Co., Inc. is the third-party custodian of client assets for Glover Park Wealth Management, LLC.
Tax-Aware Hedge Fund Strategies:
Long/Short Equity: A systematic, quantitative strategy that invests long in undervalued stocks and short stocks which are expected to underperform.
Trend-Following Long/Short Managed Futures: access alternative exposures like systematic trend-following across equities, bonds, commodities, interest rates, currencies, global markets, and other asset classes.
Notional Principal Contracts (NPC): Financial agreement where two parties exchange payments based on a set index (like interest rates or currency values) applied to a notional amount. NPCs are swapping payment streams, not the actual principal, to manage risks such as changes in interest rates, currencies, commodity prices and are commonly used in swaps, caps, and floor structures.
How does a Tax Aware Hedge Fund (Trader Tax Fund Status) help potentially offset ordinary income?
Tax Aware Hedge Funds are setup as "Trader Funds" that specialize in a tax-aware strategy implementation. The goal of the fund is to generate ordinary losses, through notional principal contracts (NPC), a rarer and more valuable type of tax deduction that can directly offset ordinary income, such as W-2 wages, K-1 business profits, or short-term investment gains.
Please consult with your CPA or Tax Advisor on these investment strategies as Glover Park Wealth Management, LLC does not provide tax or legal advice.
Ordinary Losses from Active Trading:
The long-short structure creates frequent trading opportunities, allowing the fund to realize losses on short positions or underperforming longs without selling core holdings. These losses are classified as ordinary (short-term) losses due to the high turnover in derivatives, options, and short sales using Notional principal contracts (NPC).
Notional Principal Contracts, or NPCs is a swap contract where two parties agree on a series of payments which are correlated to an assets class. The payments are ordinary. Ordinary losses are generated whenever an investor has to pay their counterparty at the end of the agreement for a position which loses value. However, when a position is terminated early, it can be treated as either a capital gain or loss.
Unlike capital losses that exceed capital gains, (limited to $3,000 annual offset against ordinary income, with excess carried forward in perpetuity, ordinary active K-1 business losses can fully offset W-2 ordinary income dollar-for-dollar in the year realized.
Pass-Through Structure: (Trader-Fund Tax Status)
As a partnership, tax items (gains, losses, etc.) "pass through" directly to investors via Schedule K-1 forms. Investors report these on their personal
returns, enabling immediate use of losses against other income sources.
Leverage and Scale:
The strategy uses portfolio margin leverage to amplify notional exposure, increasing the volume of trades and thus the potential for loss harvesting. This can generate losses exceeding the fund's net performance, creating a "tax alpha" buffer. For example, even in up markets, shorts can produce ordinary income deductible losses.
Tax Savings Example in 37% Federal Taz Bracket : For a top-bracket investor with $100,000 in ordinary losses on a $1,000,000 investment. This could potentially reduce federal taxable income by the amount of the loss. Hypothetical tax savings example of a 10% ordinary income loss. ($100,000 x 0.37% Federal Tax) = $37,000
Consult with your CPA or EA - Glover Park Wealth does not offer tax or advice. Above is a hypothetical educational example and should not be relied upon as advice.
Eligibility and Risks: High minimums and it's illiquid with lockups. Investment returns are not guaranteed. Past performance is not indicative of future results.
The goal of investing in a Tax Aware Hedge Fund Strategy is to compound after-tax wealth.
Many private Tax Aware Hedge Funds require a Qualified Purchaser (QP) Requirement: A “qualified purchaser” is an individual or a family-owned business that owns $5 million or more in investments. The term “investments” does not include a primary residence or any property used for business.
If you are a Qualified Purchaser (QP) with an investment portfolio, liquid assets, or outside investments that are over $5,000,000, and would like to learn more about tax-aware hedge fund strategies, schedule a meeting with Glover Park Wealth Management, LLC today.
Tax Aware (TA) Long/Short Hedge Fund
Why use Glover Park Wealth as your RIA for the
Tax-Aware Hedge Fund Strategy?
Tax Aware Hedge Fund Investments are designed for ultra-high net worth individuals who have investable assets over $5,000,000 or $5mm. Qualified Purchasers (QP).
Which type of investor is a Tax Aware Hedge Fund (TA) well suited for?
C-suite executives with $1mm–$20mm plus in annual compensation. Private-equity or hedge-fund partners. High income entrepreneurs, real-estate developers, professional athletes, medical practice owners, high-earning doctors, lawyers, consultants, engineers, dentists, or any individual in the 37% federal income tax bracket plus state income tax, with very high expected ordinary income yearly.
- Long-Short Equity: Strategies that invest in both long and short in related instruments. Plus, compared to their long-only counterparts, long-short strategies are designed to have lower sensitivity (beta) to equity market movements, as measured by beta, volatility and drawdowns. Using long/short strategies in a diversified portfolio, have the potential to potentially generate profits from their long and short positions depending on market movements, not guaranteed, and provide an element of portfolio protection in the form of a hedge. If the stock market markets decline, the short positions will gain in value, which help to potentially offset the losses in the long side of the portfolio.
- Trend Following: Managed futures strategies are systematic, alternative investment approaches to trade futures and derivatives contracts across global commodities, currencies, interest rates, swaps, stocks, and bonds, primarily using trend-following to profit from upward or downward price momentum. The goal is for diversification and returns uncorrelated to traditional equity markets, which provide uncorrelated returns to a diversified portfolio. Trend following strategies involve long/short positions in a variety of instruments and use technical analysis such as moving averages, and varying time horizons, which try to generate a return in any market condition, unlike traditional long portfolio of equities and bonds.
Contact us to learn more about Tax Aware (TA)Long/Short Hedge Funds
LONG-SHORT and Trend following Hegde FUnds - Notional Principal Contracts (NPC)
TA Long short Hedge Fund
PLUS Tax Aware Strategy
LONG/SHORT - Tax aware
Hedge Fund
Trend following
Notional princial contract (NPC)
Tax Aware (TA)- Hedge Fund
At Glover Park Wealth Management, we believe that after tax efficient investing is a game changer for optimizing tax strategy for the ultra-high-net worth individuals.
As a plus, (TA) Hedge Funds can be potentially well suited for ultra-high-net worth individuals in the highest income tax brackets as losses in the hedge fund partnership are considered active ordinary income losses, minimizing your overall tax burden.
Alternatively, the long-short and trend following strategies enable the fund manager or quantitative strategy to capitalize on both rising and falling markets, hedging against downturns while seeking growth of capital.
The financial advisors at Glover Park Wealth are ready to help you navigate these advanced tax aware long-short hedge fund strategies, plus help you keep more of your after-tax capital for long-term investments.