Episode summary
Plan Before the Storm: Tax-Smart Exits
Summary
Slava Malkin argues that the most effective tax planning for a business sale, real estate deal, or stock liquidation begins well before the liquidity event itself. He compares a major transaction to a hurricane: once it makes landfall, options narrow, so advisors should pre-plan and use tools that can generate losses in advance.
A central case for the Northern Trust Tax Advantage Long Short strategy is efficiency. Malkin says it can produce more losses per dollar invested than traditional long-only direct indexing, while also giving clients the possibility of pre-tax outperformance. Because it harvests losses from both the long and short books, he says it is also less sensitive to market cycles and can deliver smoother tax alpha.
For concentrated stock holders, Malkin says the key question is whether the client would still hold the same portfolio if taxes were not a factor. If the answer is no, long short can help offset gains, support diversification, and be adjusted with leverage or later deleveraging to match the client’s post-liquidity goals. He stresses that advisors should define both the event and the end state as early as possible.
Key takeaways
- Slava Malkin says advisors should start tax planning before a liquidity event, not after gains are already in motion.
- Malkin says long short can generate more losses per dollar invested than traditional long-only direct indexing.
- For concentrated stock clients, Malkin says the right question is whether they would keep the same portfolio if taxes were not a constraint.
- Malkin says the strategy can be adjusted with leverage to generate more losses when a liquidity event is near, then deleveraged later.
- Malkin argues advisors should plan for the client’s post-event steady state, not just the transaction itself.
Notable quotes
“it's almost like a, you know, the analogy that I like to use is that it's like a hurricane”
“once it makes landfall, you know, your up, you know, your options become limited”
“long short can deliver a lot more losses per that dollar invested”
“if taxes weren't you know, you know, a problem are you holding the ideal portfolio that you want to be holding”
“the best thing that long-short strategy can do is, you know, allow clients to kind of plan things in advance”
How the episode opens
Hi everyone and welcome to this wealth management fast chat. I'm Shannon Rosic, director of content solutions and I am so excited to be joined by Slava Malkin, senior quantitative long-short portfolio manager at Northern Trust Asset Management. And in this conversation, we're going to be looking at why some of the most important tax planning happens well before a major liquidity event.
And Slava brings deep expertise in tax-advantaged investing and we'll explore how advisors can help clients prepare for business sales, concentrate stock liquidations and other taxable events by taking a more proactive approach to managing taxes and preserving after-tax wealth. So, a lot to unpack there. I want to dive right in.
Slava, welcome.
Thank you so much. Thank you for having me. — So, let's get under the hood a little bit because many advisors work with clients anticipating a business sale, a real estate transaction or, you know, a significant stock liquidation. Why is it important to begin tax planning before a liquidity event occurs? And how can tax-advantaged long-short strategy help advisors take a more proactive approach?
Yeah, I mean, liquidity event is such a huge event in a, you know, in a particular client's life that it's almost like a, you know, the analogy that I like to use is that it's like a hurricane. And so, it's a major hurricane that's headed towards the coast and once it makes landfall, you know, your up, you know, your options become limited. So, it's best to pre-plan for this and make sure that you discuss with your advisor, you know, various venues, various kind of instruments and various strategies that can be employed to mitigate some of the some of the effects of a of a liquidation.
And long-short is what is certainly one of the tools in the toolkit and the reason it is such an attractive tool in that toolkit is because you can basically start a long short strategy well in advance of that liquidity event and what that does is it create essentially allows the client to collect losses to generate realized losses well in advance of the liquidity event and then use those losses whenever the liquidity event occurs.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- tax-smart exits
- liquidity events
- tax planning timelines
- long/short portfolio management
- transaction risk management
Companies and tickers mentioned
- NTRS
- Northern Trust Asset Management
Watch the episode
Watch “Plan Before the Storm: Tax-Smart Exits” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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