On the Benefits of Centralized Portfolio Management

Abstract

The authors show that a central manager can improve the trading and tax efficiency of a multimanager portfolio. Active managers of various skill levels are simulated, and historical performance is shown with and without tax management. Using U.S. stock data from 2006 to 2015, the authors find that the after-tax return benefit of tax management ranges from 20 to 120 bps, depending on market environment and skill level—with less benefit for high-excess-return managers and more benefit for lower-excess-return managers.