The US Treasury has warned hedge funds and other investment managers that it will scrutinise increasingly popular strategies designed to generate tax benefits for wealthy investors, saying it will not ignore aggressive tax planning, according to a report by the Financial Times.
The warning sent shares in Affiliated Managers Group (AMG) sharply lower on Tuesday. The listed investment group, which holds stakes in a number of asset managers, has significant exposure to AQR, one of the leading firms in the growing tax-aware investment market.
AMG shares fell 7% to $340.58 after Treasury officials raised questions about the rapid expansion of strategies that use systematic trading and leverage to harvest investment losses that can be used to offset gains.
More than $90bn flowed into hedge fund strategies marketed as generating “tax alpha” between the beginning of 2025 and April this year, according to previous reporting by the Financial Times.
The techniques build on traditional tax-loss harvesting but apply the approach at much greater scale. Managers use quantitative models to trade large numbers of securities, often combining long and short positions and leverage, with the aim of systematically realising losses while maintaining exposure to markets.
AQR and Quantinno, which was founded by former AQR employees, have been among the firms associated with the development of the strategy. The rapid growth of the market has prompted a wave of competition and attracted increasing attention from policymakers.
Kevin Salinger, deputy assistant secretary for tax policy at the Treasury, warned investors about some of the claims being made in the market during a Wall Street Tax Association seminar.
Salinger urged investors to be cautious about offers that appear unusually attractive, although he did not identify any specific manager.
The Treasury has not announced new rules or guidance, but officials indicated that the department intends to engage with the investment industry before deciding whether further action is required.
AQR said the Treasury’s comments formed part of an information-gathering exercise and that there was no immediate indication of new regulations.
The firm said it remains focused on adapting its existing investment process to improve tax efficiency while operating within applicable rules and guidance.
AQR has previously argued that investors should primarily be attracted by the underlying investment performance generated by its strategies, rather than the tax benefits. The firm refers to this underlying performance as “pre-tax alpha”.
The Treasury’s comments have nevertheless increased scrutiny of the sector, with some investors and market participants concerned that the rapid growth of tax-aware strategies could attract regulatory intervention.
AMG has also faced short-selling pressure in recent months amid concerns that AQR’s tax-focused offerings could come under greater scrutiny.
Jay Horgen, AMG’s chief executive, sought to play down the significance of the issue during an earnings call in May, describing the tax-aware strategies as only one part of AQR’s broader investment platform.
The Treasury and Quantinno reportedly did not immediately respond to requests for comment.
