RenTech Execs. Say Basket Option More Than Just Tax Dodge

Jul 23 2014 | 1:03pm ET

The basket options Renaissance Technologies used to save billions in taxes aren’t just a dodge but an “extremely important” part of its trading strategy, the hedge fund’s co-chief insisted yesterday.

A U.S. Senate panel report Monday accused RenTech and other hedge funds of using the options—sold by Barclays and Deutsche Bank—to pay the lower long-term capital gains rate on short-term trading profits. RenTech alone is said to have saved more than $6 billion. But testifying yesterday, co-CEO Peter Brown said that options both gave RenTech the ability to lever its investments and protect it from model and programming failures.

“On an unlevered basis, our models produce modest returns with very low volatility,” Brown told the Senate Permanent Subcommittee on Investigations.

The panel’s leader, Sens. Carl Levin (D-Mich.), was having none of it, accusing Barclays prime-brokerage executive Gerard LaRocca of “waffling” on one question and asking RenTech CFO Mark Silber how a vehicle the hedge fund controlled that had no employees could have disagreed with a RenTech investment decision.

“In this circumstance, I think you’re correct,” Silber said. But he insisted that RenTech bought the options “for substantial non-tax business reasons,” and would have done some “regardless of their tax treatment.”

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