The Tax Guru the WSJ says has Wall Street’s “Strangest Hustle”: w/ Andy Lee, Parallaxes Capital - EP237

Economics Explored

According to the Wall Street Journal, this episode’s guest, Andy Lee, is “The Tax Whiz With the Strangest Hustle on Wall Street”. He’s the founder and CIO of Parallaxes Capital, and he joins us to talk about tax receivable agreements (TRAs). Andy explained what TRAs are, how they come about for companies going public such as Shake Shack in 2015, and why he’s investing in them.

Disclaimer: Nothing in this episode should be construed as financial or investment advice.

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About this episode’s guest: Andy Lee, Founder and CIO of Parallaxes Capital

Andy founded Parallaxes Capital in 2017. Previously, he was with Lone Star Funds, focused on investing in the Americas. He began his career at Citigroup.

Andy graduated from the University of Illinois at Urbana-Champaign with a Masters in Accountancy and a Bachelors in Finance and Accountancy.

Andy has been featured in publications including Wall Street Journal, Capital Allocators, Institutional Investor, NBC, Forbes, ReOrg Radio and Fitch’s LevFin Insights. He has spoken at events and conferences for organizations such as the Association of Asian American Investment Managers (“AAAIM”) and leading academic institutions including the University of Illinois, University of Pennsylvania and Texas Christian University (“TCU”)

When Andy is not working, he enjoys taking his corgi (Taco) on long walks.

Fun Fact: Andy, rarely one to back down from highly ambitious goals, ran a marathon less than 180 days from ACL, MCL and PCL surgery.

Source: https://parallaxescapital.com/our-team/

What’s covered in EP237

• Introduction. (0:00)
• TRAs for companies going public in the US. (6:18)
• TRAs agreements and their value for private equity investors (i.e. pre-IPO owners). (12:52)
• Tax refunds, risk management, and investment opportunities. (19:57)
• TRAs and investment strategies. (24:47)
• TRAs and their potential as a diversified investment. (30:55)

Takeaways

1. TRAs convert future corporate tax savings (e.g. from depreciation expenses) into current income streams.
2. TRAs provide long-dated, typically 15-year income streams that can be sold by pre-IPO owners (e.g., private equity investors).
3. Private equity firms use TRAs to increase their earnings from the sale of businesses they’ve invested in.
4. Ideal Candidates for TRAs are large, stable companies with predictable long-term profitability (e.g. Shake Shack), rather than high-growth tech startups which often lack immediate profitability.
5. US tax expertise is required to properly analyze and invest in TRAs.

Links relevant to the conversation

WSJ article about Andy, “The Tax Whiz With the Strangest Hustle on Wall Street”: https://www.wsj.com/finance/investing/tax-whiz-strange-hustle-wall-street-d51ddbc6

Parallaxes Capital: https://parallaxescapital.com/

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Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au.

Full transcripts are available a few days after the episode is first published at www.economicsexplored.com.