Smart Money – CALL IT HEDGE FUNDS’ dirty secret: They often generate painful tax bills for investors.<\/p>\n
That mattered less back when hedge funds routinely churned out double-digit returns. But as returns have slipped in recent years, individual investors \u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u009d many who are brand-new to hedge funds and in taxable accounts \u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u009d are starting to feel the pain from the tax collector’s take.<\/p>\n
Wall Street’s starting to cater to this crowd by dreaming up new tax-mitigation ideas for qualified hedge-fund investors \u00c3\u00a2\u00e2\u201a\u00ac\u00e2\u20ac\u009d those who have a certain net worth and, essentially, can afford to risk their money. Some of the strategies are old, some are new; many are expensive.<\/p>\n
In the 1980s and 1990s, with hedge funds regularly producing double- or even triple-digit returns for investors, taxes on hedge-fund returns didn’t even register on the radar of the average Main Street individual investor. It was a billionaire’s problem.<\/p>\n
But hedge-fund assets reached $1 trillion globally last year, and with the growing ranks of “mass affluent” individuals turning to hedge funds, taxes matter to more people than ever. With so many funds’ returns below 10%, “taxes are a bigger issue,” asserts Grady Durham, president of Monticello Associates, a Denver consulting firm to wealthy families.<\/p>\n