Robert Mercer’s Hedge Fund Trying to Avoid Tax “Abuse” Charge

Mar 19, 2017
J. Webster
Comments Off on Robert Mercer’s Hedge Fund Trying to Avoid Tax “Abuse” Charge

Just how long does the hedge fund Renaissance Technologies hold on to a stock? What’s the average time period they hold on to a stock in general? I’m guessing it’s a bit shorter than say, Warren Buffett,…who might hold on to a stock for ten or twenty years while Renaissance Technologies might trade in and out of a stock in less than a second. I’m also guessing that the Trump administration is going to side with the reclusive hedge fund tycoon who backed his campaign on this one…but man, nearly $7 billion owed in taxes on this question of short term trades is an awful lot of money.

Renaissance’s profits were further enhanced by a controversial tax maneuver, which became the subject of a 2014 Senate inquiry. According to Senate investigators, Renaissance had presented countless short-term trades as long-term ones, improperly avoiding some $6.8 billion in taxes. The Senate didn’t allege criminality, but it concluded that Renaissance had committed “abuses.” The I.R.S. demanded payment. (Renaissance defended its practices, and the matter remains contested, leaving a very sensitive material issue pending before the Trump Administration.) (New Yorker)

Of course, the question is on old one in the stock market, what’s the value of all these short term quant like trades…it’s not a new issue, but one that still really hasn’t been probably talked about enough. Classifying trades as short and long term, and determining how much is charged in taxes on these trades, is supposed or was supposed to act as an incentive to hold stocks for longer periods of time, but this hasn’t been the case the last ten or twenty years. The fact is Renaissance Technologies and their other funds are some of the most successful hedge funds of all time, based entirely it seems on trading in and how of stocks at light speed. I’m sure this isn’t the only reason that Mercer backed Trump, but it must be a big reason why.

But what’s interesting is the founder of Renaissance Technologies, James Simmons, was a big Clinton supporter.

This from CNBC on Clinton’s proposed tax on high frequency trading:

Hillary Clinton’s plan is short on details, but she says that high frequency trading “has unnecessarily burdened our markets and enabled unfair and abusive trading strategies that often capitalize on a ‘two-tiered’ market structure with obsolete rules.”

And it’s not really clear why and when these short term trades were presented or counted as long term trades. It is Mercer’s hedge fund now though…it will certainly be interesting to hear how this plays out in the Senate in the coming months.

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