I recently reviewed a ~$50M portfolio generating roughly $2M/year of ordinary income from large allocations to private credit and money market funds.

The owners also earn millions outside the portfolio, so that additional income was creating roughly $740,000 of federal taxes every year for no reason.

The portfolio makeover includes:

• Securitized affordable housing loans targeting +10% tax-exempt income

• Tax-aware real estate with double-digit expected returns shielded by depreciation & 1031 exchanges

• A tax-aware long/short SMA that seeks to outperform the market while harvesting capital losses to offset gains elsewhere

• Private equity for differentiated return potential (ideally inside Roth/IRA accounts or paired with tax loss harvesting)

• Box spread financing to access liquidity without forced sales, further deferring any tax bills

• Thanks to their REP status, we can take the 1.7x deduction from MHC deals against their ordinary income

• Tax-aware hedge funds designed to provide a diversifying return stream while realizing ordinary deductions

The tax-aware hedge fund sleeve is usually the hardest concept for people to understand, so I made the illustration above.