July 7, 2013

Renaissance Technologies’ Tax Strategy

How to convert short-term to long-term capital gains? 

Bloomberg on the tax strategy used by Renaissance Technologies 
As described in the memo and by people with knowledge of the matter, the transaction worked as follows: Barclays bought a portfolio of stocks and other instruments that fund managers at Renaissance wanted to trade. The bank hired the fund managers to oversee the portfolio, paying them a nominal fee.

Then Medallion bought an option with a term of two years, whose value was linked to the worth of the portfolio. Renaissance had full discretion to trade the securities in the portfolio.

Medallion could claim it owned just one asset -- the option -- which it held for more than a year, allowing any gain to be treated as “long-term” when its investors reported the income on their personal tax returns.

Founded by James Simons, Renaissance Technologies operates the Medallion Fund and others.

Tags: renaissance technologies tax strategy, medallion fund tax strategy, how to convert short-term to long-term capital gains