Neuberger Berman has introduced a tax-managed long-short equity strategy within its Custom Direct Investing platform, expanding the options available to wealth managers serving high-net-worth clients.
The strategy, which initiated its first client portfolio in May, is designed to enhance pre-tax and after-tax returns by applying a 130 percent long and 30 percent short exposure.
The addition comes as demand increases among HNW and UHNW investors, as well as endowments for personalized solutions that address both market performance and tax efficiency.
“Our wealth clients, and increasingly endowments, are coming to us to help them manage their portfolios with a tax-aware lens,” Scott Kilgallen, managing director and head of North American intermediary at Neuberger Berman, said in a Monday announcement.
The Custom Direct Investing platform, which now manages $6.6 billion in assets as of May 30, aims to offer advisors a broader toolkit as tax-aware investing becomes more integral to portfolio construction.
Its newest addition combines quantitative and fundamental inputs to identify long and short positions, with an emphasis on mitigating tax drag. According to the firm, this approach enables a more tailored solution for clients seeking to reduce taxable gains without compromising on return potential.
In addition to the new long-short offering, Neuberger Berman’s tax-aware suite includes long-only equity portfolios across core, fundamental active, and quantitative models, as well as options-based strategies designed to manage concentrated stock positions.
“This new long/short strategy is designed to help investors manage both their pre-tax and after-tax liabilities with an eye toward what we call ‘tax alpha,’” Kilgallen said. “As the tax landscape continues to shift and evolve, customizable and adaptive strategies for managing tax burdens and generating alpha are becoming a core focus for our investors.”
Neuberger Berman is bolstering its tax-aware toolkit just as the federal government under President Donald Trump pulls back funding from some of the country's most elite educational institutions. Harvard, whose tax-exempt status has also been threatened as it faced accusations of supporting anti-Semitism, has pushed back, filing a lawsuit in April to halt a freeze to its funding.
Pending tax legislation puts another layer of financial pressure on universities. Under the House bill approved in May, private university endowments would see a graduated excise tax that could reach as much as 21%, based on the size of the endowment per student. Because the bill excludes international students from the county, institutions with higher foreign enrollment stand to see an outsized tax burden.
Jacob Greene, senior vice president and head strategist at Neuberger Berman's custom direct investing division, notes that the Senate counterpart bill – which is being hotly debated as legislators face a July 4 deadline – is much more forgiving than the House version, with maximum adjusted tax rates on endowments dialed back to 8%. But in either case, university endowments will have to think about tax as a new lever in their investment strategies.
"In some ways, it's bringing them to the same way that anyone from high net worth investors to corporations, insurance companies, institutional Investors have thought about things, which is your pre-tax return may be great, but you really need to manage for your after tax liabilities, and that's done through harvesting losses and deferring gains," Greene told InvestmentNews in an interview.
Despite news of universities unloading some of their private equity stakes, endowments still have sizable allocations in private markets, which have traditionally generated substantial net investment income.
"Grabbing losses that can potentially offset those tax implications is incredibly valuable," Greene says.
And while long-short strategies have wide general appeal for investors during volatile markets, Green argues adding a tax component creates even more benefits.
"Regardless of the market direction, you may be able to harvest losses. If the market's going up, maybe you're lost harvesting on the short side of the portfolio. If the market's going down, maybe you're lost harvesting on the long side," he says. "Either way, you're regularly getting some after-tax benefits that suplement the pre-tax returns."
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