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170,880 Views • Sep 3, 2021 • Click to toggle off description
Renaissance Technologies Medallion Fund, the top performing hedge fund run by James Simons just agreed to pay the largest tax settlement in US history to the IRS.
This is how they dodged the taxes. Short term capital gains are taxed at a higher rate than long term gains and almost all of their trades were short term.
Banks like Barclays and Deutsche Bank sold the fund basket options whose payoff is tied to the performance of a portfolio of stocks. They then allowed the fund to constantly change the portfolio of stocks in the basket.
After a year, the option was exercised, and because it was in existence for more than a year, it was a long-term gain.
These options also allowed the fund to use a lot of leverage (as much as 20X) and limit their losses to the premium paid plus collateral - The banks were left with a lot of the risk. Over ten years they saved around $6.8 billion dollars, and today’s news says they’ve settled agreeing to pay $7 billion dollars in back taxes to the IRS.
Video on The Story of James Simons - Renaissance Technologies & Medallion Fund • The Story of James Simons - Renaissan...
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YouTube Comments - 250 Comments
Top Comments of this video!! :3
I'm not math wizard, but paying $200 million to keep $6.8 billion in your pocket for an extra 10 years seems like a really good deal for Renaissance.
1K |
Very useful in case I might need to evade a few billions in taxes someday.
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I think this man is arguably among the best sources for financial insight.
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Speaking of Renaissance, you should absolutely do a video on equity trading in the Renaissance.
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Rentech has an army of PhDs to optimize their revenue streams, so I'm not that surprised that they found this loophole.
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For a second I thought that he would talk about Reneissance era bankers who were trading options in Venice, Italy 😂
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For those who don't understand:
Say I'm a bank and I create a basket of stocks and you purchase an option on that basket. Medallion is buying the option of the basket, and being allow to the trade the underlying basket under my name. I make my profit from charging you fees from trading or using my services. When a year pass, you exercise the option and I have to pay you the value of that option's basket. Because it is a year, it is considered longs term capital gain for Medallion.
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So essentially, they paid the taxes the owed. Minus interest.
Always evade paying taxes, they say. You get caught? you pay what you should have paid before, but you get to keep the money until caught, generating income while investing it. Didn't get caught? congratulations, you had the cake and ate it too!
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They made out pretty well. They should have had to pay the taxes, any money they made working that money, and interest to be fair.
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Sounds like justice till you read the earnings compounded off those returns. Then you realize what justice really is.
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Always wondered how these massive funds avoid short term taxes....I paid 37% on my gains from short term trading.
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Seems like they were barely punished at all.
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Thank you, because this kept me up last night
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So they paid the tax they would have paid anyway.
They should be in jail.
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I am in love with these shorts😂
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Loved the Blue's Clues picture used lmfao
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to be fair the short terms capital gains tax premium is quite unique to the US and all around rather pointless, so I’m rooting for Renaissance here
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I want to master the art of tax avoidance.
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@Patrick Boyle: Since a few weeks ago your microphone seems to underperform. It somehow sounds broken.
Please keep up your interesting contributions!
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@PBoyle
3 years ago
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