Tax-Aware Long/Short
Proprietary long/short equity strategies that seek better after-tax alpha.
Background
What is Tax-Aware Investing?
Tax-managed investing has evolved significantly over recent decades. What began as simple opportunistic loss harvesting has developed into a rigorous institutional discipline supported by a growing body of academic and empirical research.
The central insight is well-established. For taxable U.S. investors, after-tax return is the only return that matters for long-term wealth creation. A strategy that maintains investment exposure and adds alpha, while generating meaningful tax efficiency has the potential to produce superior after-tax outcomes.
Direct indexing represented a meaningful advance in this field. But its harvesting capacity is structurally constrained. As portfolios appreciate over time, the gap between market value and cost basis widens, and opportunities to realize losses contract. Tax-aware long/short strategies are designed to address this limitation.
The Strategy
A Bidirectional Harvesting Engine
The fundamental constraint of conventional tax-loss harvesting, including direct indexing, is that loss opportunities are market-dependent. When a portfolio appreciates over time, harvestable positions diminish. This is not a portfolio management failing. It is a structural property of long-only strategies.
Tax-aware long/short investing is designed to resolve this constraint by making the harvesting mechanism market-direction independent. The strategy maintains both long and short equity exposures. As markets rise, short positions in appreciated securities may present harvesting opportunities. As markets decline, long positions may offer the same. The structure seeks to generate realized losses across varying market environments, not only when markets decline.
This structural property is what distinguishes the approach from direct indexing and conventional harvesting strategies. The loss-generation capacity is designed not to diminish as the portfolio ages. The strategy may be sustained across multiple years without the structural attrition that limits long-only approaches.
Mechanics
Portfolio Structure
Tax-Aware Long/Short adds systematic long and short equity extensions, based on our proprietary forecasts of expected returns, to a client's existing portfolio without requiring the initial liquidation of appreciated positions.
Overlay, Not Displacement
The strategy operates alongside existing holdings. Appreciated positions remain in place. There is no triggering event, no forced realization of embedded gains.
Long Leg
Long positions are constructed through the Firm's quantitative models, signals, and factor research to forecast expected returns. Position sizing is calibrated to maintain appropriate market exposure across the combined portfolio.
Short Leg
The short book draws on the same research process, identifying securities the Firm's models and signals expect to decline. Beyond return seeking, the short leg plays a structural role. Its sizing is calibrated to offset the long leg's directional exposure, keeping the combined portfolio market-neutral.
Annual Calibration
The strategy may be dynamically adjusted to reflect each client's specific needs, with the goal of maximizing the investor's personal after-tax returns.
Structural Advantages
How Long/Short Compares to Conventional Approaches
Sustained Harvesting Capacity
Unlike long-only strategies whose harvesting opportunities may contract as a portfolio appreciates, the long/short structure is designed to seek consistent loss-generation potential across full market cycles.
Market-Direction Independence
The strategy is constructed to present potential harvesting opportunities in both rising and declining markets. This is a structural property not available to long-only portfolios, which generally require market declines to surface harvestable positions.
Non-Disruptive Overlay
Existing holdings are preserved. The strategy does not require portfolio restructuring or the realization of embedded gains to implement.
Calibrated to Each Client
Loss generation may be sized and timed to align with a client's anticipated capital gains, including multi-year pipelines spanning carried interest distributions, phased exits, or scheduled asset sales.
Why NinePointTwo
Managed Directly by the Firm
Tax-Aware Long/Short is a proprietary strategy designed and managed in-house by NinePointTwo Capital. It draws on the same quantitative long/short infrastructure that underpins the Firm's Alternatives division, applied here with a specific focus on systematic tax efficiency and client-level customization.
Each engagement is tailored to the individual client's portfolio composition, tax circumstances, and anticipated capital events. The Firm works directly with the client to design, calibrate, and adjust the strategy over time, with no intermediary layers.
In-House Expertise
Built on the Firm's quantitative long/short capabilities.
Fully Bespoke
Designed around each client's specific tax and capital gains profile.
Direct Access
Managed by the Firm's partners with no intermediary fees or delegation.
Who It's For
Designed for Taxable U.S. Investors
Tax-Aware investing is most relevant for taxable investors in the U.S. seeking a modern approach to adding additional sources of return to their portfolios, while significantly enhancing after-tax wealth.
- Investors seeking to add alpha to their portfolios
- Owners of highly appreciated portfolios in need of tax-efficient diversification
- Investors seeking to generate tax benefits from existing assets to enhance after-tax wealth
- Investors with the goal of reducing their equity market exposure/risk
- Individuals and family offices seeking to enhance charitable giving capabilities
Investing involves substantial risk, including the possible loss of principal. Tax-aware long/short strategies involve unique risks and may not be suitable for all investors. The effectiveness of tax management strategies depends on individual taxpayer circumstances and may vary. Past performance is not indicative of future results.
Contact
Is Tax-Aware Long/Short Right for You?
We work with a select number of clients on a direct basis. If you are interested in learning more, we welcome a conversation to explore whether Tax-Aware Long/Short may be a suitable fit for you.