Short sellers target the "tax arbitrage" empire: as regulation tightens, the trillion-dollar ecosystem comes under fire

A short-selling campaign targeting Wall Street's “tax avoidance business” is now directing its focus at an asset management giant worth tens of billions of dollars.

According to a newly obtained investor letter by Bloomberg, short-selling firm Orso Partners has established a short position against Affiliated Managers Group (AMG). AMG is an investment company with $813 billion in assets under management, and its holdings include AQR Capital Management, founded by Cliff Asness.

Orso's logic is straightforward: The core engine behind AQR's rapid growth in recent years—tax optimization strategies—is facing direct threats from tightening regulation. Once regulation comes into effect, AMG's profits will be hit first.

After the report was released, AMG’s stock price fell as much as 1.7% to $294.28 in one day, completely erasing the intraday gain of up to 2.9% earlier.

How big is this “tax avoidance business”?

In recent years, the continued rise in U.S. stocks has allowed wealthy investors to accumulate large taxable gains. Wall Street has thus launched a type of product called “tax-aware long-short strategies,” specifically designed to legally reduce tax burdens for high-net-worth clients.

The operational logic is not complicated: Hold profitable stocks for the long term to defer taxes, while actively selling loss-making stocks to “harvest losses,” using those losses to offset other gains and reduce the current tax bill.

These strategies have now expanded through hedge funds, ETFs, and separately managed accounts, and according to previous Bloomberg reports, the total scale of related strategies has exceeded $1 trillion.

AQR is the leader in this field. Since at least 2024, the company has aggressively promoted tax optimization products, and the associated assets have grown 10-fold in two years, reaching about $57 billion. In 2025, AQR saw a record asset increase of $75 billion for the year, raising total assets to $189 billion.

How important is AQR to AMG?

This is at the heart of Orso’s short-selling logic against AMG.

Last year, AMG reported net inflows of $51 billion, a year-on-year increase of 36%. AMG said in a conference call this February that this growth was "mainly driven by AQR."

AMG Chief Financial Officer Dava Ritchea said in the same call that thanks to AQR’s "strong performance, continued innovation, and differentiated expertise," AQR is expected to contribute over 20% of AMG’s profits in 2026.

In other words, AQR has become an increasingly concentrated and crucial part of AMG's profit structure. This also means that if AQR’s core business is impacted, AMG’s financial results will be hit even harder.

Where lies the regulatory risk?

Orso portfolio manager Nathan Koppikar stated directly in the letter: Some of AQR’s tax optimization strategies use leverage or complex derivatives to create large trading losses, which may attract attention from the IRS.

"This aggressive tax positioning is based on regulatory arbitrage and is highly susceptible to IRS scrutiny," he wrote.

Signs of regulatory pressure are already visible. According to Bloomberg, the U.S Treasury Department is preparing to strengthen oversight of at least one type of related strategy. Meanwhile, in February, Fidelity began restricting clients from opening new long-short separately managed accounts—seen in the market as a signal that the ability of these strategies to attract new funds may already be constrained.

Koppikar wrote in the letter: "When the hammer of regulation falls, AQR’s assets under management and fee income will suffer a heavy blow. This damage will directly impact AMG’s profit margins at a time when AQR occupies an increasingly larger and more concentrated portion of its earnings."

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