PE partner with a $12M portfolio in the 37% bracket
Current mix (outside of his own PE deals):
- $2M in retirement accounts
- $10M in taxable accounts
- Portfolio is 100% long-only public stocks and bonds
We’re restructuring everything around after-tax return maximization. Here’s what we’re implementing:
1) Long/Short SMA for tax alpha and better equity exposure
- Moves him from a basic long-only portfolio to a multi-signal alpha model layered on top of market beta
- Expected to harvest > 100 percent of the account value in capital losses in < 2yrs
- Those losses offset gains from co-investments, carry, and rebalancing without changing the underlying holdings
2) Add tax-aware hedge funds for true diversification
- Low correlation to both stocks and bonds
- Pass through ordinary losses that offset earned income
3) Super Duper Mega Tax-Free Roth Conversion™
His income swings depending on carry distributions.
In low-income years, we’ll have excess deductions from the hedge funds that can completely shield Roth conversions. This moves assets into the tax-free bucket and locks in decades of tax-free compounding.
4) Higher-octane illiquids inside the Roth
- Private equity
- Infrastructure
- Private credit
All positioned for tax-free growth.
5) Real estate allocation
Start with 14%–16% preferred equity opportunities that depreciation + L/S SMA allows us to fully shield from taxes.
Build out long-duration real estate exposure that we can hold for 15+ years before 1031-ing into the next property.
6) Cheap, tax-deductible leverage instead of bank debt
Instead of borrowing at 7 percent or higher through a securities-backed line, we’ll borrow at less than 4 percent using box spreads. The interest is deductible against capital gains.
The outcome
A portfolio that is:
• Using leverage far more efficiently
• More diversified with less equity risk
• Able to defer or eliminate most taxes
• Positioned for significant Roth conversions
• Set up for multi-decade, tax-efficient compounding