One of the thing that sucks about all these billionaires running end run around the tax system (outside of the obvious pay your fair share) is that they then have a bigger and bigger war chess to splash around. Anyone else who is competing the investment arena has to either play by the same rules or can't compete. It inherently makes more people have to buy into these end-run tax scenarios or risk being left behind. In this case it looks Peter Thiel just went all in on the ROTH IRA beyond what anyone else did.
Its not to dissimilar from the Countrywide CEO saying he was in a forced situation to get into subprime even though he had not interest and though it was a bad investment. If he didn't the board would vote him out. Recognize it is different but its kind of not unless the rules of the game change (which they may be in real time if this propublica billionaire take down works).
I think the central fallacy is that you're assuming more money makes it easier to achieve higher returns. For the vast majority of finance, you get diminishing returns to scale. There are many investment strategies that have limited capacity, and as you get bigger you either have to dilute or take increasingly risky positions.
The phenomenon's pretty ubiquitous among hedge funds. Tons of funds produce stellar returns at $100 million AUM, then use that track record to grow to a $1 billion+ and all of a sudden put up mediocre results.
I think you have two things confused. % vs total returns.
Larger funds have a tougher time finding high returns. However if you are getting dollars on a lower cost basis (i.e. untaxed vs 0.8 taxed dollars) you have more money that can be exposed. Therefore allowing for more upside and alternatively any losses can be spread across a larger base.
In no world does not having more money allow for more money to be gained. In venture it also means you have more money you can burn at a loss.
You simply have more investible dollars to use. Therefore any losses can be spread across a larger base, or, alternatively, you have potentially more gains available to you as a result of more exposure.
more investments over a greater pool of assets, chasing returns, also increase your surface area of error. Examples abound.
There's a reason its easy for funds to get big with a small LP commitment round, and there's also a reason most funds close after hitting certain numbers, increasing the AUM means increased complexity, and thus, potential implosion.
The real world bears many examples of growing AUM portfolio that blew up past a certain size.
There's no counterexample that I know of , of a fund with a consistent growth pattern that started small, hit size, and then increasing further their size with the same trajectory from having more investment dollars to use.
Agreed - though the numbers in the Thiel Roth aren't at that level of scale. Therefore having more money to invest in the market allows for an advantage.
From your statement I can't tell if you think that having more after tax money is a benefit or a drawback for Thiel's investments.
Also at higher AUM VC you have the Softbanks (and now every major VC firm that needs to compete at that level or be left in the dust)
Taxes drive a lot of investment strategies. A large number of strategies to increase returns are things like tax loss harvesting, because every sale forces a taxable event that is going to reduce your total capital base. Not being taxed obviates all of that and opens up a number of opportunities.
I don't disagree - I would say that he definitely leaned in on the letter of the law and leaned away from the spirit of the law. $5B in untaxed gains is frankly both impressive in that he generated those returns and also feels a bit unfair to the rest of us who have to pay cap gains on all our smaller wins.
> One of the thing that sucks about all these billionaires running end run around the tax system
It's not an 'end run around the tax system'. It's either legal or it's not. If illegal they run the risk of getting caught. If legal it's legal. Period. Nothing also to prevent a regular person from doing something somewhat similar other than they don't know how to or don't know it even exists to use or exploit. Now you can say 'oh well the rich can hire people who know' but there (in this day and age) nothing to prevent a regular person from taking the time to research and come up with their own schemes using online research and help from others readily available. Of course if you don't have money to be taxed what's the point of that? If you do that takes effort and most people just want to assume what is being done is wrong because someone has or has access to information and importantly knowledge they don't have.
People who are wealthy have many things that regular people don't have.
I would say that tax evasion isn't as black and white as you make it out to be (tax attorneys will take aggressive and passive stances on their interpretation of the law). As well there is the letter of the law and the spirit of the law.
Agree I could also have set up a roth IRA like that. What I don't have access to is the deal flow and the ability to structure the deal on my terms (supposedly i.e. shares for pennies). That's something only power/money and access can get you.
Its not to dissimilar from the Countrywide CEO saying he was in a forced situation to get into subprime even though he had not interest and though it was a bad investment. If he didn't the board would vote him out. Recognize it is different but its kind of not unless the rules of the game change (which they may be in real time if this propublica billionaire take down works).