Thane Stenner: After-tax innovation is the next frontier in investing

The investment industry has a long history of innovation. From index funds and
exchange-traded funds to advances in portfolio construction, quantitative investing
and alternative strategies, each generation has brought new capabilities to investors
and their advisors.

Today, another important evolution is taking shape. For wealthy Canadian families, it
could have a meaningful impact on long-term wealth creation: the opportunity to move
beyond what investments earn and focus more closely on what investors keep after
taxes.

Investment performance has traditionally been evaluated through two dimensions:
returns and risk. Both remain fundamental. But advances in investment technology,
portfolio optimization and tax-aware strategies are creating opportunities to
incorporate a third dimension: tax efficiency (I have trademarked the phrase “Tax
Alpha^TM” in Canada). This represents more than a refinement to traditional tax
planning. It is the evolution of how investment decisions are made.

Rather than managing taxes only after investment decisions, new approaches
incorporate tax considerations directly into security selection, portfolio construction
and ongoing management. The implications are particularly meaningful for high-networth and ultra-high-net-worth families, where investments across personal accounts,
corporations and trusts can generate different forms of taxable income. The timing of
gains, investment structures and management of losses can all influence how much wealth remains invested and continues compounding.

Advances in systematic investing and long/short strategies are also expanding the
investment toolkit. Capabilities once largely reserved for institutional investors are
becoming increasingly relevant to private wealth management.

To explore these developments, I sat down with Robert Wilson, head of innovation
and portfolio strategy at PICTON Investments. PICTON is one of the largest hedge
fund firms in Canada with $19.3 billion in assets under management as of July 31,
2026, and more than two decades of experience developing alternative investment
strategies.

Our conversation focused on five developments shaping the future of after-tax
investing and what they could mean for family wealth.

1. The opportunity: Expanding investment performance beyond purely returns and risk

Stenner: Investment innovation has traditionally focused on generating better returns
and managing risk. Today, we’re seeing greater attention paid to after-tax outcomes,
particularly for investors with significant taxable assets. How is this changing how
investment managers define performance, and why can relatively small
improvements in tax efficiency create meaningful long-term value?

Wilson: We’re seeing an important evolution in how investment performance is
defined. Generating returns and managing risk remain essential, but for taxable
investors, another dimension can have an equally meaningful impact on long-term
wealth: how those returns are taxed.

Two investments can generate identical pre-tax returns, but produce very different
outcomes. In Canada, interest income, dividends and capital gains receive different
tax treatment. For an Ontario investor in the highest marginal tax bracket in 2026,
interest income can be taxed at 53.53 per cent, while realized capital gains are
generally subject to an effective rate of approximately 26.76 per cent, assuming the
50 per cent inclusion rate. Unrealized capital gains generally aren’t taxed until
realization, allowing more capital to remain invested.

Consider a hypothetical $1 million investment earning 8 per cent annually over 30
years. If returns are generated entirely through fully taxable income, the portfolio could
grow to approximately $3 million after annual taxes. If generated entirely through
deferred capital gains, it could grow to approximately $10.1 million before liquidation
taxes, or approximately $7.6 million after tax on a full liquidation. These simplified
scenarios illustrate an important principle: the character and timing of investment
returns can be as important as the returns themselves.

Investment innovation is making it possible to pursue attractive risk-adjusted returns
while considering how they translate into after-tax wealth. Rather than evaluating
managers solely on benchmark outperformance, we can also consider how effectively
they help investors retain and compound returns. For wealthy families with long
investment horizons, that is a meaningful advancement.

2. The solutions: How tax-efficient investing is evolving

Stenner: Wealthy families have long incorporated tax planning into investment
decisions, but today there is a broader range of solutions designed to improve aftertax outcomes. How should investors distinguish between tax-efficient and tax-aware
strategies, and what new opportunities do these approaches create?

Wilson: Not all tax-smart strategies work the same way. Broadly speaking, there are
two categories: tax-efficient and tax-aware investing.

Tax-efficient strategies may naturally generate lower tax drag because of how returns
are produced or how investments are structured. They don’t necessarily incorporate
tax objectives into individual investment decisions. Certain low-turnover equity
strategies, for example, may generate more returns through deferred capital gains
rather than annually taxable income. Some alternative strategies, including marketneutral equity, merger arbitrage and long/short equity, may also produce favourable
tax characteristics, depending on their implementation, structure and the investor’s
circumstances.

Tax-aware strategies, by contrast, deliberately incorporate tax considerations into
investment decisions. Managers may evaluate when gains are realized, which losses
can be harvested and how trading decisions affect after-tax outcomes.

These strategies can be personalized or non-personalized. Personalized solutions,
including direct indexing and tax-aware separately managed accounts, can reflect an
investor’s circumstances. Non-personalized approaches apply tax-management
principles across a pooled portfolio.

Investment structure also matters. In a separately managed account, investors
directly own securities and recognize the associated gains and losses. Certain limited
partnerships can allocate eligible gains and losses to investors, subject to applicable
rules. In mutual fund trusts and corporate mutual funds, losses generally remain within
the investment vehicle rather than being allocated to individual investors.

The distinction is important because it influences whether tax benefits generated
within an investment can be used elsewhere in a family’s portfolio.

Ultimately, these approaches are complementary. Tax-efficient strategies seek to
reduce tax drag through their inherent characteristics, while tax-aware strategies
actively incorporate tax objectives into portfolio management. Both expand the
opportunities available to taxable investors.

3. The Momentum: What the rise of tax-aware investing in the U.S. tells us

Stenner: We’re seeing significant innovation in the United States, where direct
indexing is a sizeable category and tax-aware long/short strategies are one of the
fastest growing segments. What’s driving this growth, and what can Canadian families
and advisors learn from these developments?

Wilson: Several trends are coming together. First, wealthy investors increasingly
want solutions reflecting their individual circumstances. While pooled funds provide
access to common investment strategies, investors have different tax positions,
concentrated holdings and financial objectives. Separately managed accounts offer
greater customization.

Second, technology has made personalization more practical. Direct indexing allows
investors to own individual securities while seeking to replicate an index, creating
opportunities to manage gains and losses at the security level. When a holding
declines, a manager may realize a loss and reinvest in a similar security while
maintaining the desired market exposure, subject to applicable tax rules.

Third, innovation is extending beyond direct indexing. Tax-aware long/short strategies
combine long and short positions with systematic tax management, expanding
opportunities for security selection, risk management and the realization of gains and
losses.

The growth figures demonstrate the momentum. Cerulli reported approximately US$1
trillion in direct-indexed assets under management in the U.S., with this expected to
reach $1.5-$2 trillion by 2027-2028. Tax-aware long/short strategies also represented
a substantial category estimated at US$170 billion.

The broader lesson for Canada is the direction of innovation. The U.S. market is
increasingly integrating investment selection, personalization, technology and tax
management. Canadian tax rules differ, so the strategies require thoughtful
adaptation, but the underlying principles are highly relevant to Canadian families
seeking better after-tax outcomes.

4. The innovation: A new era of Net Investing

Stenner: For decades, investment innovation has focused on finding new ways to
generate returns and manage risk. Now we’re seeing strategies that can create value
through how those returns are taxed. How is this changing what’s possible for
investors, and could tax-aware investing become a new source of investment value?
Wilson: We’re entering a new era of what we call “net investing,” where the focus is
not simply on generating investment returns, but on improving the value investors
retain after taxes, the after-tax return.

At PICTON Investments, tax efficiency isn’t new to us. For more than two decades,
we’ve developed alternative investment strategies that seek to generate returns
differently and have also historically been tax efficient. Our Market Neutral Equity and
Long Short Equity strategies, Multi-Strategy Alpha and Arbitrage strategies have
historically demonstrated tax efficiency. While tax efficiency wasn’t necessarily their
primary objective, it has been an important by-product that the strategies have
delivered.

What is new is the ability to move from strategies that are naturally tax-efficient to
those that are intentionally tax-aware. Advances in quantitative investing, portfolio
optimization and long/short investing allow managers to incorporate tax
considerations directly into investment decisions alongside return generation and risk
management.

That thinking led us to develop PICTON NETERA™, our next evolution in tax-aware
investing. PICTON NETERA brings together our experience in long/short equity,
quantitative research and active risk management. Rather than managing taxes after
returns have been generated, the strategy seeks to improve after-tax outcomes
alongside pre-tax returns.

For wealthy families, this represents a meaningful advancement. It’s not just about
finding more ways to generate returns. It’s about finding more ways to keep those
returns working for investors.

5. The future: Turning after-tax innovation into lasting family wealth

Stenner: As these strategies evolve, the opportunity for wealthy families extends
beyond individual investments. It raises broader questions about portfolio
construction, how different accounts and structures work together, and how
investment and tax professionals collaborate. Where do you see the greatest
opportunities for HNW and UHNW families?

Wilson: The opportunity begins with taking a more integrated view of family wealth.
Many families hold investments across personal accounts, corporations and trusts,
each with different objectives, liquidity needs and tax considerations. A total-portfolio
approach allows advisors to evaluate how those investments work together and where
after-tax efficiency can be improved.

At PICTON, we think about portfolio construction through four interconnected
budgets: risk, alpha, fees and taxes. Each influences the investor’s ultimate outcome,
and the opportunity is to manage them together.

Consider an individual who holds a concentrated equity position accumulated over
decades and wants to diversify without unnecessarily accelerating taxes, or one that
may be managing wealth across generations and is seeking to improve long-term
compounding. Each situation creates different investment and tax considerations.
Tax-efficient strategies may reduce ongoing tax drag, while tax-aware strategies may
provide additional flexibility in managing gains and losses. Investment structures can
also influence whether those benefits are available to investors.

Of course, tax efficiency should never be evaluated in isolation. Returns, risk, fees,
liquidity and complexity all matter. A strategy that creates tax benefits but introduces
inappropriate investment risk may not improve the family’s overall outcome.

This is also where advisors play an increasingly important role. As investment
strategies become more sophisticated, families need professionals who can connect
investment management with tax planning, estate considerations and long-term
financial objectives.

The next generation of after-tax investing isn’t simply about accessing new products.
It’s about applying new capabilities to solve real investment problems. That’s where I
believe the greatest value will be created.

A new era of after-tax investing

My conversation with Robert reinforced the opportunity that exists at the intersection
of investment innovation and tax-aware wealth management.

The fundamentals of successful investing remain unchanged: disciplined portfolio
construction, diversification, risk management and a long-term perspective. What is
evolving is our ability to incorporate tax considerations into those decisions in more
sophisticated ways.

Advances in technology are making it possible to evaluate returns, risk, costs and
taxes together. Systematic strategies are creating new opportunities to manage gains
and losses, while long/short investing is expanding how managers construct
portfolios. More integrated approaches to asset location and portfolio design are also
helping families consider their wealth holistically.

These innovations do not eliminate investment risk or the need for sound tax advice,
but they do expand the tools available to investors and their advisors. For family
offices, the opportunity is to understand how returns are generated, how they’re taxed
and how different strategies can support long-term wealth. For advisors, it creates an
opportunity to connect investment management and tax planning more closely.

As investment capabilities evolve, I believe this integrated approach will become
increasingly important. The next chapter of investing isn’t about choosing between
generating attractive returns and managing taxes efficiently. It’s about finding better
ways to do both.

Because when it comes to building lasting family wealth, it’s not just about helping
your clients earn more, it’s about helping them keep more of what they earn.

Follow Thane Stenner and Stenner Wealth Partners+ on LinkedIn.
Thane Stenner Interviews/Articles, Member of Canadian Family Offices.

Explore PICTON Investments’ tax resources to learn more:
Tax Education https://www.pictoninvestments.com/en/a-better-way-to-explain-tax-toyour-clients
Tax Smart Solutions https://www.pictoninvestments.com/en/tax-smart-solutions

_{Disclaimer: This story was created by Canadian Family Offices’ commercial content division on behalf of Stenner Wealth Partners+ at CG Wealth Management, which is a member and content provider of this publication. CG Wealth Management is a division of Canaccord Genuity Corp., member of CIPF and CIRO. Tax & Estate advice offered through Canaccord Genuity Wealth & Estate Planning Services Ltd. Thane Stenner’s views, including any recommendations, expressed in this article are his own only, and are
not necessarily those of Canaccord Genuity Corp.}

About Stenner Wealth Partners+

Stenner Wealth Partners+ (SWP+) is an in person/virtual Multi-Family
Office/Outsourced CIO Consulting team of financial/wealth specialists with a
boutique approach and global perspective. SWP+ serves Canadian and US
investors/households with generally a minimum of 10M+ in investable assets (or
25M+ net worth). As a CG Wealth Management team, SWP+ is a highly exclusive
practice team with one of Canada’s largest independent wealth management firms.
Client Range of Net Worths: between $25M To $3B+. They strategically limit new
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to ensure a highly personalized and focused approach. SWP+ is a member of
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