Raising cash in a portfolio while maintaining asset allocation targets

Advisor needed to raise $4MM in cash for a client while maintaining asset allocation targets across multiple managers. Aperio analyzed the tax costs and saved the client $136K in taxes by integrating two portfolios. 

Challenge

Advisor wished to tax-efficiently raise cash for a client purchase while maintaining asset allocation targets. Client had $24MM in Aperio's Active Tax Indexing strategy with a Russell 1000 benchmark, and $4MM with a domestic small-cap separately managed account (SMA) outside of Aperio. Advisor had planned to liquidate the small-cap SMA to generate the required cash.

Aperio solution

Aperio evaluated the liquidation costs and suggested combining the two portfolios and tax-efficiently liquidating across the client's entire assets.  Aperio analyzed the tax lots of the small-cap SMA portfolio.  Liquidating would have cost the client $141K in taxes. Aperio ran a transition analysis to:

• Absorb the securities from the small-cap manager.
• Shift Aperio's benchmark from the Russell 1000 to the Russell 3000 to cover the small-cap exposure.
• Sell the most tax optimal $4MM in securities from across the entire portfolio.

Impact

Approach resulted in saving the client $136K in tax costs without increasing the portfolio tracking error. Client was able to only pay $5K in taxes versus $141K. Advisor maintained the same exposure to both large and small-cap domestic equities.