First Quadrant Corp. is opening a second front in its business: the taxable market.
The Pasadena, Calif., quant shop has started courting taxable institutional assets - insurance company general account assets, nuclear decommissioning trusts and voluntary employees beneficiary associations - to expand its asset base beyond traditional pension clients.
The firm has created a taxable strategy that adds tax impact to the three factors - valuation, risk and transaction costs - in its portfolio management model, said Christopher G. Luck, the director heading the taxable efforts. Every trade decision will balance the three previous factors, along with whether the transaction will create a tax liability or be offset by a previous loss, which can result in a very different implementation of the same quantitative strategy.
He also noted the firm has modified its portfolio accounting system to reflect taxable gains and losses for those accounts.
First Quadrant is not going into the retail market, only trying to leverage its products into a new institutional segment, Mr. Luck said. Cross-selling to existing clients is not an option, because only about six of its 50 clients have VEBAs or nuclear trusts.
