US Treasury to Scrutinize Fast-Growing ‘Tax Alpha’ Funds

The US Treasury said it will scrutinize fast-expanding ‘tax alpha’ strategies that use systematic trading, large portfolios and leverage to realize investment losses for tax purposes. Affiliated Managers Group shares fell 7% to $340.58 on Tuesday after the warning.

The strategies scale up traditional tax-loss harvesting by using quantitative models to trade large numbers of securities, often combining long and short positions and leverage to try to realise losses while keeping market exposure. Managers marketing these approaches aim to convert losses into tax offsets for wealthy clients.

Market flows into products billed as generating ‘tax alpha’ have grown quickly. More than $90 billion entered hedge-fund products marketed this way between the start of 2025 and April, reflecting rising investor demand and competition among firms offering tax-aware services.

Kevin Salinger, deputy assistant secretary for tax policy at the Treasury, addressed the issue at a Wall Street Tax Association seminar and warned that investors should be cautious about offers that appear unusually attractive. He did not identify any specific managers.

AQR and Quantinno, the latter founded by former AQR employees, are among firms associated with developing and scaling the approach. The Treasury said it will engage with the investment industry to gather information before deciding whether further guidance or regulatory action is needed and has not issued new rules.

Affiliated Managers Group, which holds stakes in multiple asset managers and has exposure to AQR, saw its shares fall sharply after the Treasury’s comments. AMG has faced short-selling pressure in recent months related to concern that AQR’s tax-focused offerings could face closer scrutiny. During an earnings call in May, AMG chief executive Jay Horgen characterised tax-aware strategies as only one element of AQR’s broader platform and sought to downplay immediate impact.

AQR described the Treasury comments as part of an information-gathering exercise and said there was no immediate indication of new regulation. The firm said it continues to adapt its investment process to improve tax efficiency within existing rules and has urged investors to consider underlying investment performance, which it refers to as pre-tax alpha, rather than rely solely on claimed tax benefits.

The Treasury and Quantinno did not immediately respond to requests for comment. Regulators have not outlined specific enforcement plans and officials said they will seek information from market participants before determining next steps.