Nathan Sosner is a national thought leader and Principal at AQR Capital Management, where he specializes in sophisticated investment programs for high-net-worth clients. His research on tax-aware investing has been published in the Journal of Wealth Management and the Financial Analyst Journal, who awarded him the Graham and Dodd Award for the best paper of the year in 2020.

In this episode of Success That Lasts, Nathan joins Jared Siegel to discuss the importance of tax efficiency.

Tune in here, at delapcpa.com/podcast, or wherever you listen to podcasts:

Here are a few highlights from Jared's conversation with Nathan Sosner:

• The main difference between tax-agnostic and tax-aware strategies at AQR, Nathan shares, is that tax-aware funds think not only about investment styles, but also about tax results of individual trades.
• Jared asks Nathan how AQR quantifies the economic benefits of integrating income tax and estate tax planning in a portfolio design. “[We] approach management of that portfolio in tax efficient ways,” Nathan responds “For example, if you started a program at the age of 40 and continued until 80, the after tax wealth transferred to the family can be three times larger if you look to achieve tax efficiency and sensible investment strategy across all the dimensions, as opposed to only focusing on investment strategy and completely ignoring the income and estate tax implications of your investment.”
• From a statistician’s point of view, the greater the success, the more attention it gets, and failures tend to fade away into the background. Wealth created by concentrated risk looks great post-factum, but that is because a large portion of the wealth distribution where wealth has been lost is ignored. “A concentrated risk is a constraint for many investors,” Nathan comments.
• According to Nathan’s research, volatility creates a significant drag on cumulative wealth, and the only way to reduce that drag is to reduce volatility through diversification.
• There isn’t a lot of information about the after-tax risk adjusted performance of strategies, Jared says. It’s difficult to report performance on an after-tax basis because of its nature — individual clients' facts and circumstances, which would impact the net result of an investment.
• Nathan shares what to consider when transitioning from one investment strategy to another. “There are four key parameters to changing a strategy, changing the portfolio tax efficiently,” he claims. “[They are] tracking error, build-in gain, how much leverage you are willing to take, and time.”

This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor. The recipient should conduct his or her own analysis and consult with professional advisors prior to making any investment decisions.