Will Hedge Fund Investors Start Asking for Tax Alpha?
Can Hedge Fund Managers Deliver It?

Abstract

Tax efficiency, a common topic in the mutual fund world, has never been a big priority for hedge funds. Although U.S. taxable investors would benefit if hedge fund managers were more tax aware, the offshore and tax-exempt investors putting up the greater share of the capital haven’t required it. But looming higher tax rates, combined with a greater emphasis by hedge funds on client service and retention, are likely to change the dynamic. Tools and techniques for expressing investment ideas in a more tax-efficient manner are available. The task for managers will be to employ them as appropriate, while keeping investment strategy firmly in the driver’s seat.