Taxation, Risk and Return

Impact of Taxes on Risk and Return in Portfolio Management

The influence of taxes on risk and return is a significant factor in portfolio management. This is particularly true for portfolios owned by individuals, families, and businesses that are not tax-exempt, unlike most institutional and pension portfolios. The four primary types of taxes that affect these entities include taxes on revenues and income, wealth, consumption, and gifts, inheritances, and estates.

Tax law is intricate and ever-changing, with varying preferences given to different types of income. To navigate this complexity, a framework has been developed to aid wealth managers in understanding taxes and identifying when they require the expertise of a specialized tax professional.

This framework offers three key benefits. Firstly, it is versatile, applicable across different tax jurisdictions, asset classes, and account types. Secondly, it provides a structure that allows advisers to effectively communicate the impact of taxes on portfolio returns to private clients and devise strategies to enhance their after-tax performance. Lastly, it provides the adviser with a solid foundation to address changes to the tax code.

Tax Jurisdictions and Investment Vehicles

Investment gains are taxed differently across various countries, leading to the emergence of offshore investment vehicles. These are investment products domiciled in one country but primarily marketed to investors in other countries, known as offshore financial centers. According to the International Monetary Fund (IMF), in 2018, the largest offshore financial centers included Bermuda, the British Virgin Islands, the Cayman Islands, Hong Kong SAR, Ireland, the Netherlands, and Singapore.

Structure of Offshore Investment Vehicles

Offshore investment vehicles are often structured as private partnerships controlled by a general partner (GP) who manages the investments. The investor becomes a limited partner, limiting their liability to their capital contribution and absolving them from the GP’s actions or debts. With evolving regulations, other investment vehicles like mutual funds, Undertakings for Collective Investment in Transferable Securities, ETFs, and separately managed accounts have become available for offshore investing.

Onshore Tax-Advantaged Vehicles

Investors can also achieve tax advantages without offshore investment vehicles. Many countries offer tax-deferred or tax-advantaged onshore vehicles for retirement savings. For instance, an investor can lower her tax bill by placing her bond investments in her tax-advantaged retirement account and keeping her equities in a taxable account. This arrangement combines the benefits of a tax-advantaged investment vehicle with the lower fees and regulatory oversight of the investor’s home country.

The Impact of Taxes on Expected Return, Risk, and Asset Allocation

The impact of taxes on investment returns is crucial for effective financial planning. Despite the complexity of tax laws across different jurisdictions, certain foundational equations can guide investors in estimating post-tax returns and risk.

Post-tax Expected Return

The post-tax expected return is given by.

$$ \text{Post-tax expected return} \approx \text{Pre-tax expected return}\times (1-\text{tax rate}) $$

For instance, if an investment yields a pre-tax return of 10% and the tax rate is 30%, the post-tax return would be approximately 7%.

Post-tax Standard Deviation

The post-tax standard deviation, a measure of risk is givne by

$$ \text{Post-tax standard deviation} \approx \text{Pre-tax standard deviation}\times (1-\text{tax rate}). $$

This implies that higher tax rates can reduce the perceived risk of an investment.

Post-tax Variance

The post-tax variance, another measure of risk, is given by

The post-tax standard deviation, a measure of risk is givne by
$$ \text{Post-tax variance} \approx \text{Pre-tax variance}\times (1-\text{tax rate})^2 $$
. This equation is derived from the post-tax standard deviation formula.

These equations are approximations as they assume that gains and losses can be offset by other income or losses. If this is not the case, the accuracy of these equations decreases. Interestingly, higher tax rates can encourage risk-taking as the tax authority absorbs some of the investment risk, leading to a portfolio more biased towards equities. In the inclusion of taxes, the objective function becomes,

$$= \text{maximize} \left( \text{Post-tax expected return} – \frac{\lambda}{2} \times \text{Post-tax portfolio variance} \right)$$

$$= \text{maximize} \left( (1 – \text{tax rate}) \times (\text{Expected return} – \frac{\lambda}{2} \times \text{Portfolio variance}) \right)$$

Turnover Management and Tax Loss Harvesting

Turnover management and tax loss harvesting are two key strategies that investors can employ to optimize their returns and maintain tax efficiency. Turnover management refers to the practice of investing in low turnover investment strategies, such as index funds, while tax loss harvesting involves selling securities that have experienced a decline in value to offset a realized capital gain.

Tax Loss Harvesting

• Tax loss harvesting is a strategy where an investor sells securities that have depreciated in value to offset a realized capital gain. For instance, if an investor has made a profit from selling shares of Company A, they can sell shares of Company B that have declined in value to offset the tax on the capital gain.
• However, it’s important to be aware of the wash sale rule. In some jurisdictions, if a security is sold at a loss and then repurchased before a certain period has passed, the loss on the sale cannot be used to offset realized capital gains.

Turnover Management

• Investing in low turnover investment strategies, such as index funds, is a simple way to ensure tax efficiency. This is because index funds, due to their passive nature, tend to have lower turnover rates compared to active strategies.
• However, the relationship between turnover and tax efficiency is not always linear. If a portfolio manager’s investment insights are sufficiently good, it can become attractive to implement them in the portfolio, even if in doing so she incurs transaction costs and creates a capital gains tax liability.

A Non-exhaustive List of Tax Considerations for Taxable Investors

This section provides an overview of various tax considerations for taxable investors, focusing on specific asset classes and types of investment income. It’s crucial to understand that these considerations are not exhaustive and do not replace the advice of a tax accounting expert. They also do not delve into the complexities of tax codes in any specific country. However, they are applicable to investors based or taxed internationally.

Short-term and Long-term Capital Gains and Loss

Many tax jurisdictions incentivize long-term investments to promote economic growth and minimize market aberrations that could cause economic stress in the financial system. As a result, investments held for a longer period are often taxed at a lower preferential tax rate. For instance, in the US, long-term capital gains are taxed at a lower rate than short-term gains.

Interest and Discount or Premium Amortization for Government Treasury and Corporate Bonds

Taxation generally involves treating the discount as a compound imputed interest, a portion of which is taxed in each tax period. It’s important to note that taxation will occur even if there is no interest cash inflow to the investor. If a bond was purchased at a premium, the premium can be amortized over the bond life to offset other interest income.

Understanding Municipal Bonds and Their Tax Implications

Municipal bonds are debt instruments issued by local governments, such as states, provinces, and municipalities, across various countries. A prime example is the US, where municipal bond issues often pay coupon interest exempt from federal and usually state income taxes, depending on the investor’s residence. However, it’s crucial to note that bonds purchased at a discount will be taxed as a capital gain as the discount approaches par when the bond nears maturity.

Deciphering Qualified and Ordinary Dividends

Just like long-term and short-term capital gains, some countries, like the US, differentiate in taxing dividends based on the duration a stock is held. In a scenario referred to as a “qualified dividend”, where the investor holds the stock for longer than a set period, the dividend tax rate is preferential. Conversely, the “ordinary dividend” scenario implies that the dividend is taxed at a higher rate, often the same as that of ordinary income.

Taxation of Financial Instruments

Financial instruments such as derivatives, currencies, and cryptocurrencies are subject to different taxation rules. These rules can vary based on the type of instrument, the holding period, and the nature of the underlying asset.

Taxation of Derivatives

For example, in the US, futures contracts are taxed as a mix of long-term and short-term gains or losses. Options, on the other hand, are taxed based on the holding period and whether they are traded, exercised, or allowed to expire.

Taxation of Currency Gains and Losses

Positions in the spot market are typically taxed as ordinary short-term or long-term gains or losses. Derivative foreign exchange positions follow the general taxation rules for derivative transactions.

Taxation of Cryptocurrency Gains and Losses

As a relatively new asset class, the taxation of cryptocurrencies is still being defined. Some jurisdictions treat cryptocurrencies as property, applying the same tax rules as for other property assets.

Directly Owned Real Estate Taxation, Rents, and Capital Gains

Investing in real estate, like purchasing a home or commercial property, involves various tax implications. These taxes can be categorized into short-term and long-term capital gains. For instance, if you sell a property within a year of purchase, the profit is considered a short-term capital gain and is taxed as ordinary income. However, if you hold the property for more than a year, the profit is considered a long-term capital gain and is taxed at a lower rate. Real estate, being a physical asset, also has unique tax circumstances.

Capital Improvements and Depreciation Recapture

Capital improvements, such as renovations or extensions, can increase the cost basis of a property, affecting the calculation of gains when the property is sold. Additionally, depreciation recapture comes into play, requiring the investor to pay tax on the depreciated value of the property at the time of sale, using ordinary income tax rates.

Property Tax

Property tax is another important aspect of real estate taxation. This tax is levied by local jurisdictions, like municipalities, and varies across different geographical locations.

Lease Income

Income generated from leasing a property is usually taxed as ordinary income. However, this tax can be reduced by claiming deductions for depreciation and other expenses, such as property tax.

Pass-through Treatment of Certain Funds versus Assets Held and Managed in Trust

Investment vehicles like mutual funds and hedge funds typically receive pass-through tax status. This implies that the end investor is liable for paying capital gains and investment income tax for their share of the investment pool. For instance, if an individual invests in a mutual fund that realizes a capital gain, the investor is responsible for the tax on that gain. Conversely, assets held in trusts, such as family trusts or foundations, can become separate taxable entities. These trusts often have lower tax brackets, leading to higher tax rates for lower income.

Pass-through Taxation of Private Equity and Other Limited Partnership Investments

Business formations like limited partnerships are treated as pass-through entities for income tax purposes. This means that the tax liability is passed on to the limited partners. For example, if a private equity fund structured as a limited partnership realizes a profit, the limited partners are responsible for the tax on that profit. General partners in a limited partnership receive special tax treatment for income received as carried interest, which is taxed as a capital gain.

Wash Sale Rules

The wash sale rule is a regulation that prevents an investor from selling an investment at a loss and repurchasing the same or a substantially identical investment within a short period. For instance, if an investor sells shares of Company A at a loss and repurchases the same shares within 30 days before or after the sale, the loss is typically disallowed for current tax purposes. However, the disallowed loss is added to the cost basis of the repurchased investment.

Bi-lateral Tax Treaties

Bilateral tax treaties are agreements between two countries that aim to prevent double taxation. These treaties are crucial for investors engaged in cross-border investment transactions. For example, an investor in the US with investments in Germany would need to understand the US-Germany tax treaty to avoid double taxation. However, these treaties can be complex and often have loopholes that can lead to taxation uncertainty.

Alternative Minimum Tax (AMT)

The Alternative Minimum Tax (AMT) is a tax regulation prevalent in countries like the United States, designed to prevent the misuse of tax benefits. For instance, a high-income individual might invest in municipal bonds, which are typically tax-exempt, to reduce their tax liability. However, under AMT, these bonds might be taxable, thereby limiting the tax benefits.

Centralized Portfolio Management (CPM)

CPM is a strategy proposed by DiBartolomeo in 1992. It involves managing a single beneficiary’s assets through multiple active managers to optimize cost, tax, and information efficiency. For example, a large pension fund might use CPM to manage its assets, with all managers using a single trading desk, reducing capital gains realization and thus minimizing tax liability.

Private Wealth Management for Families

Managing wealth for families is a multifaceted task due to the necessity to harmonize the goals and limitations of various family members. This involves managing the subsets of the family portfolio as separate accounts, optimizing them individually, and as a combination at the total family portfolio level.

Tax Considerations in Family Portfolio Management

When integrating optimal trading for tax purposes in family portfolio management, several factors must be considered. For instance, consider the Smith family, where Mr. and Mrs. Smith file taxes jointly and trade within the same investment account. Any wash sale concerns should be examined at the level of each such account rather than the overall family portfolio.

Moreover, family members may fall into different income tax brackets, which may alter their optimal trades, regardless of their risk tolerance. For example, Uncle John, a high-income earner, may have different tax implications for his trading decisions compared to his nephew, a college student.

Additionally, some family members may hold concentrated positions of stock with significant capital gains accumulated over time. For instance, Grandpa Joe may have a large amount of Apple stocks bought decades ago. This combination of concentration and capital gains must be individually considered to navigate a tax-optimal trading trajectory.

Lastly, the tax considerations of beneficiaries should be properly reflected in the portfolio construction process. For example, the tax implications of inheritance and other forms of wealth transfer must be considered when managing the family portfolio.

The principles of CPM are particularly relevant for family portfolio management. This is because it is common that the same manager administers all portfolios within one family, and they have the ability to identify tax-beneficial ways to limit turnover.

Future Allocations and Tax Optimization

Private wealth management is a comprehensive process that extends beyond simply amassing net worth over an indefinite time period. It is a dynamic process that adapts to the evolving needs of the investor, their life circumstances, and the approach or payoff of certain liabilities or earmarked expenditures. For instance, as investors age and their life balance sheet changes, it brings an extra dimension to consider in wealth management, such as retirement planning or estate planning.

Investors can share with their investment advisor their planned expenditures, life milestones, and other foreseeable financial events in the future. For example, an investor planning to buy a house in the next five years or planning for their child’s college education. This information is crucial as it allows for the estimation of future optimal allocations considering planned expenditures and liabilities due at each point in time. These factors define a unique set of evolving investor characteristics like liquidity needs, risk tolerance, and tax considerations.

Efficient Portfolio Management Strategies

Understanding the future composition of a portfolio can guide current trades to a more efficient trajectory of turnover. This can be achieved through careful planning for realizing capital gains, rebalancing using cash income on the glide path to future allocations, usage of swaps, and other long-term derivative strategies. For instance, these strategies can be more or at least as effective tax strategies as tax loss harvesting alone.

Direct Indexing vs. Portfolio Customization

Direct indexing is a unique investment strategy that aims to enhance tax efficiency in retail investing while also optimizing the risk-return balance. This strategy is a variant of index-based investing but with a significant difference. It incorporates tax-aware strategies into the benchmark-relative rebalancing process. Techniques such as tax loss harvesting and minimizing the realization of short-term capital gains are employed in direct indexing. The ultimate goal of direct indexing is to surpass the benchmark in terms of after-tax returns. The integration of these tax-efficient practices allows for potentially better performance relative to the benchmark once taxes are considered.

However, the combination of both objectives presents a challenge in practice. The drive to follow the benchmark while minimizing portfolio-related taxes for the investor represents two competing objectives. The pre-tax relative benchmark performance is the more visible outcome of the two, and this may create an incentive for the manager to prioritize it. Even without this bias, the dynamic constraint in portfolio management to minimize tracking error on a pre-tax basis often leaves too little “room” for trading to be made really tax efficient, unless the tolerance to increase tracking error in favor of more tax efficiency is high.

Portfolio Customization

Portfolio customization is a strategic approach in portfolio construction that emphasizes on tax efficiency and investor-specific goals, rather than benchmark-relative performance. This approach is often seen as the pinnacle of private wealth portfolio management objectives.

The concept of ‘portfolio customization’ has its roots in the ‘mass customization’ strategy of the early 90s, which aimed to combine diverse consumer preferences with operational efficiency. For instance, a car manufacturer offering customizable features while maintaining production efficiency.

For wealth management firms handling numerous investor clients with individual portfolios, the ability to automate portfolio customization is vital. This automation, like using robo-advisors, helps firms stay profitable and financially competitive.

Dealing with Concentrated Positions from a Tax Perspective

In the field of investment, dealing with concentrated positions can pose significant challenges, particularly from a tax perspective. This topic delves into the strategies and considerations for managing such positions.

Challenges in Advising an Investor with a Concentrated Position

• Under-diversification: For instance, if an investor’s portfolio is heavily invested in Apple Inc., it lacks diversification, exposing the investor to higher risk.
• Accumulated Capital Gains: Suppose the Apple Inc. shares, held for a long period, have accumulated significant capital gains. Selling these shares to diversify the investments would trigger substantial taxes.

Complementarity Portfolio

• This strategy is used to mitigate the challenges of under-diversification and accumulated capital gains. It involves creating a separate, fully diversified portfolio, such as one including stocks from various sectors and bonds.
• The main advantage of this strategy is that it provides a buffer of capital losses in the diversified portfolio for the capital gains in the concentrated position portfolio.
• The tax impact of capital gains can be mitigated by offsetting the capital gains from the concentrated position with the realized losses from the diversified portfolio.

Anticipating Losses

• Anticipating losses, which is part of this strategy, may seem counterintuitive, but it is a part of reality in financial markets and rational investor decision-making.
• If no losses occur, the investor will have generated a strong return on the diversified portfolio. For each dollar of profit, they will pay only a fraction of a dollar in capital gains tax when they rebalance.

Timeframe for Implementation

• This strategy can take a long time to implement as the diversified portfolio may generate losses slowly, restricting opportunities for offsetting gains from the concentrated position.

Effective Tax Rate Across Borders

The effective tax rate is a key consideration for investors, as it can significantly impact the returns on their investments. However, calculating this rate can be complex due to the multitude of variables involved, which can differ greatly across jurisdictions. Some of these variables include progressive tax brackets or flat taxation, specific deductions available to the investor, and the presence of Alternative Minimum Tax (AMT).

Private wealth management professionals, with the help of tax experts, are responsible for determining the effective tax rate. This rate is then used in the portfolio construction process. It’s important for the investor advisor to understand the tax implications of global investments. For example, investors in Apple Inc. receive dividends after corporate taxes have been deducted. However, if the investor is also taxable in another country, such as India, the Indian tax authorities may not recognize the corporate taxes paid in the US.

Moreover, tax laws and regulations can change over time, adding another layer of uncertainty to wealth management. Therefore, it’s crucial for the investor or the investment advisor to seek proper counsel on taxation details and expertise with local and international regulations that impact the investor’s portfolio.

A Primer on Taxable Portfolio Optimization

Portfolio optimization is a strategic process that involves adjusting portfolio holdings to maximize investor utility. Various factors can influence this process, including taxes. The impact of taxes on portfolio optimization can be significant, and it’s crucial to understand how this works.

Markowitz Mean-Variance Optimization

The Markowitz mean-variance optimization is a method used to maximize investor utility. In this method, the utility (U) is calculated as the expected average return of the portfolio (R) minus the product of a certain factor \(\lambda\) and the variance of the portfolio \(\sigma^2\). The variance is the square of the standard deviation of the portfolio. The formula for this is:

$$U = R – \frac{\lambda}{2} \times \sigma^2$$

Tax Considerations in Portfolio Optimization

Taxes can significantly affect portfolio optimization. This is because taxes can reduce the expected return and increase the variance of the portfolio. To account for this, the Markowitz mean-variance optimization utility can be modified to include the effect of taxes. The modified utility (U) is calculated as the expected return after tax \(R_{\text{after tax}}\) minus the product of a certain factor \(\lambda\) and the variance after tax \(\sigma^2_{\text{after tax}}\) . The formulas for these are:

$$U = R_{\text{after tax}} – \frac{\lambda}{2} \times \sigma^2_{\text{after tax}}$$

Capital Gains Tax Considerations

Capital gains tax is another factor that can affect portfolio optimization. This tax is triggered by trading and can reduce the expected return of the portfolio. However, since capital gains taxes are deterministic, they do not affect the variance of the portfolio. To account for this, the tax-aware utility function can be further modified to include the capital gains tax rate. The formula for this is:

$$U = R_{\text{after tax}} – \frac{\lambda}{2} \times \sigma^2_{\text{after tax}} – \text{Capital gains tax rate}$$

Capital gains tax can significantly reduce the expected return of a portfolio, making it essential to consider various tax-related issues during portfolio construction. The goal should be to align return-risk objectives with the minimization of capital gains taxes, especially those on short-term capital gains. Additionally, it’s important to avoid wash sales.

Income Tax Effect on Return

Income tax can also affect an investor’s return. For instance, the return on a stock, particularly the income portion from dividends, can vary depending on whether the dividends are qualified or non-qualified. Similarly, the tax status of coupon payments from municipal bonds can depend on the investor’s circumstances. In both cases, the after-tax expected return needs to be adjusted accordingly for optimization.

Trading of Investment Instruments

Monitoring the trading of investment instruments, such as bonds or stocks, is vital. The optimization process should carefully record the timing of both the acquisition and recent sale of investments within a portfolio. This is done through the organization of tax lots, which are sorted chronologically. Each tax lot represents the quantity and cost basis of a security in a specific transaction. Multiple purchases of the same security result in multiple tax lots, each of which must be tracked separately for calculating returns and potential tax liability.

Municipal Bonds

Although most municipal bonds pay coupon interest exempt from federal income tax, realized capital gains and losses on these bonds can have tax effects. This can influence how they are treated in portfolio optimization.

Optimal Portfolio and Tax-Aware Optimization

When it comes to individual investment, the optimal portfolio is significantly influenced by the tax lots of the investments, not just the investments themselves. This is particularly true when tax-aware optimization is enabled.

Tax-Aware Optimization

Tax-aware optimization requires the differentiation of tax lots based on their respective traded dates. For instance, if you bought shares of Apple Inc. at different times, each purchase would be considered a different tax lot. This is in contrast to optimization without tax awareness, which can group securities held in different share lots in simple percentage weights.

In the process of portfolio construction, the same security in a different tax lot is treated differently. This is because repurchases of the security can trigger a wash sale, which is tracked in tax-aware portfolio optimization. The tax adjustments impact mean variance optimization and the investor’s utility, which is why tax lots are tracked.

Securities Weightings

Partial results of sample optimization show the largest increases and decreases in securities weightings for both tax-aware and tax-unaware portfolios. For example, if you held shares of Amazon and Tesla, the weightings of these shares in your portfolio could change significantly depending on whether you’re using tax-aware or tax-unaware optimization.

While the specific details of each security and position influence the change in weightings, it is important to note that several tax-advantaged securities were optimized out of the tax-aware portfolio. This indicates that security characteristics can be subordinate to historic costs and other factors.

Portfolio Turnover

The turnover, or the percentage of the portfolio that changes due to recommended trades, is significantly lower in the taxable portfolio optimization compared to the non-taxable version. This can be explained by the fact that more transactions increase the chance of triggering capital gains taxes, which is a dynamic drag on the expected portfolio return. Therefore, the portfolio construction process will aim to avoid capital gain-realizing transactions as much as possible, which will also reduce the overall number of transactions.

Practice Questions

Question 1: The complexity of tax law, especially in a global context, can be a challenge for wealth managers. However, a framework has been developed to assist in understanding taxes and determining when the expertise of a specialized tax professional is needed. This framework is designed to be applicable in a variety of situations. Which of the following is NOT a situation where this framework is applicable?

1. Different tax jurisdictions
2. Asset classes
3. Forecasting market trends

Answer: Choice C is correct.

The framework developed to assist in understanding taxes and determining when the expertise of a specialized tax professional is needed is not applicable in forecasting market trends. This framework is designed to help wealth managers navigate the complexities of tax law, particularly in a global context where different tax jurisdictions and asset classes may be involved. It is not designed to predict market trends or provide investment advice. The purpose of this framework is to ensure that wealth managers are aware of the tax implications of their decisions and can seek expert advice when necessary. It helps in understanding the tax consequences of different investment strategies and asset allocations, and in planning for tax-efficient wealth transfer. However, it does not provide any tools or methodologies for forecasting market trends, which is a completely different area of expertise.

Choice A is incorrect. The framework is indeed applicable in situations involving different tax jurisdictions. It is designed to help wealth managers understand the tax laws and regulations in different countries and how they might affect their clients’ investments and wealth management strategies.

Choice B is incorrect. The framework is also applicable to different asset classes. It can help wealth managers understand the tax implications of investing in different types of assets, such as stocks, bonds, real estate, and other investment vehicles.

Question 2: Taxes can significantly impact the risk and return of a portfolio. There are four main types of taxes imposed on individuals and businesses. Which of the following is NOT one of the main types of taxes imposed on individuals and businesses?

1. Taxes on revenues and income
2. Taxes on wealth
3. Taxes on investments

Answer: Choice C is correct.

Taxes on investments is not one of the main types of taxes imposed on individuals and businesses. The main types of taxes imposed on individuals and businesses are income taxes, wealth taxes, consumption taxes, and transfer taxes. Income taxes are levied on the income earned by individuals and businesses. Wealth taxes are levied on the total value of personal assets, including bank deposits, real estate, assets in insurance and pension plans, ownership of unincorporated businesses, financial securities, and personal trusts. Consumption taxes are levied on goods and services that people buy. Transfer taxes are levied on the transfer of assets from one person to another.

Choice A is incorrect. Taxes on revenues and income are indeed one of the main types of taxes imposed on individuals and businesses. They are levied on the income earned by individuals and businesses. This includes wages, salaries, and other forms of compensation, as well as profits from business operations, investments, and other sources.

Choice B is incorrect. Taxes on wealth are also one of the main types of taxes imposed on individuals and businesses. They are levied on the total value of personal assets, including bank deposits, real estate, assets in insurance and pension plans, ownership of unincorporated businesses, financial securities, and personal trusts.

Glossary

• Offshore Investment Vehicles: Investment products domiciled in one country but primarily marketed to investors in other countries.
• General Partner (GP): The entity that manages the investments in a private partnership.
• Limited Partner: An investor in a private partnership whose liability is limited to their capital contribution.

Private Wealth Pathway Volume 1: Learning Module 4: Investment Planning; LOS 4(b): Discuss the tax efficiency of investment across various asset types and recommend various tax management strategies for asset allocation.