How tax managed services align AWM business priorities: PwC

Rob Creaney

Partner, Tax, Asset and Wealth Management, PwC US

Eric Bowgren

Director, Tax, Asset and Wealth Management, PwC US

Rob and Eric made the journey from in-house to PwC as part of a tax managed service alliance. They’ve experienced the benefits first-hand and are helping more asset and wealth management (AWM) companies reap the rewards of this approach. Here’s why:

Tax functions play a critical role for AWM companies—and it’s not just about compliance that occurs after a transaction is completed. Tax can deliver value at each step of the business life cycle if it has the right infrastructure in place. While there’s no one secret sauce, we’re seeing tax managed services help AWM tax functions unlock these benefits by strengthening their core capabilities.

What the business expects

Closer alignment of tax resources to the strategic priorities of the business is a rising imperative for asset managers. The slow pace of the deals market is prompting asset managers to focus on liquidity, such as through fundraising, new product launches, private equity and credit, as well as preferred lending deals. Developing tax-efficient business structures for all of these pursuits can become a competitive advantage—smartly structured funds tend to attract more investors and tax teams play an important role in this process.

62%

AWM tax executives said the structuring of new funds and fund launches are a priority in the 2024 tax year

Source: Attendee survey, PwC AWM Tax Executive Roundtable 2024

Tax is needed not just for upfront fund formation and investment due diligence processes, but throughout the fund life cycle. For example, tax teams are expected to support new fund investor relations, helping investors every step of the way with tax matters. Tax is being asked to reallocate resources for more direct customer interface given the complexity of many new fund structures. In addition, tax must deliver feedback at “deal speed” on the characterization and location of investments within the structure, while also continually developing tax-efficient incentive compensation strategies for deal and back-office professionals.

AWM companies are also focused on controlling expenses at the management company level as many investors are expecting lower fees. The business is keen on tax doing more with the same or less spend, particularly given that certain tax operational costs are typically absorbed by funds. Investors expect more value for their money, along with tailored solutions. AWM companies are transforming across the organization to meet customer’s evolving needs and tax is no exception.

In addition, the business wants to avoid tax cost surprises, such as unexpected audit assessments—as a result, risk reduction and preparedness are top-of-mind. Asset managers can leverage the newly positioned tax team to bring solutions to their clients—and there’s scalability to grow along with our clients. A forward-thinking approach is expected so that the company is not continually solving yesterday’s problems.

How tax can deliver

AWM tax functions have been historically viewed as compliance-focused, and may have little infrastructure to be a strategic partner with the business to deliver quick data-driven analysis and support in a cost effective way. Those tax functions that are not “fit” for purpose are looking for next-level solutions such as tax managed services to transform. Leading AWM tax functions are asking:

Are we guided by business strategy?

AWM tax teams need to understand the business and its goals at a more granular level in order to effectively perform both compliance and business life-cycle support. Tax managed services can bring broader business perspectives, and enable tax to think across functions.

Tax is being asked to become a more integral part of the broader business, and to participate in more value-add “front office” activities such as raising liquidity. Is the tax function’s value proposition and structure aligned with strategic priorities?

Delivering prompt tax insights across functions is a must but practically, how is it done? Oftentimes, tax teams may not have the bandwidth to take on other roles and tasks and it may not be feasible to hire all needed talent. Tax managed services can help fill the gaps and enable tax to scale resources up or down—no matter how the needs of the business shift.

An acquisition of an additional asset manager can yield challenges when it comes to integrating a separate tax team—an often difficult task in a short time frame. Tax managed services can provide an efficient solution to “bolt on” the newly acquired tax team, enabling an AWM company to scale up the resources it needs in a seamless manner while still having team continuity.

Do we have the know-how we need?

AWM tax functions typically foster strong technical tax and know-how skills in certain areas but perhaps not all areas needed to support the business, and not for all countries around the world. Many issues that arise tend to be highly complex. And it’s no longer just regulatory tax knowledge that is considered a core attribute, but rather the digital know-how to develop robust processes and integrate tools.

Attendees of a recent AWM Tax Executive Roundtable cited shortage of qualified resources to fill critical roles as a top concern for AWM companies.

Tax managed services can enable team-based and quick access to a broad range of both technical and digital talent spanning the globe. This includes industry-focused teams that can deliver the latest know-how. Working within a tax managed services team can help alleviate burden not just by having swift access to PwC’s broad global network, but purposeful collaboration and acting as one team. This team knows your structures and business, and is distinctive from other professional services firms given its dedicated tax managed services resources.

AWM businesses may be geographically expanding into more markets by launching new funds and investments—resulting in the need to navigate many global tax issues. Building an in-house tax team with global tax expertise may be too costly. A tax managed service can provide a streamlined, and often more cost-effective, connection to PwC’s robust global network.

Is our technology generating the highest ROI?

Keeping up to date with the latest technology tools for both reporting and planning purposes can be challenging—but not doing so can result in higher workloads, inefficiency, and the inability to generate tax insights in a timely manner. Tax may be spending too much time tracking fund tax compliance and may not have enough real-time data transparency given the volume and deliverables of various tax teams.

Access to cutting-edge digital tools is a compelling reason to leverage tax managed services. Tax can more quickly perform compliance and analytical tasks with more confidence and accuracy.

Tax needs powerful software relating to, for example, partnership tax reporting with functionality to support fund partners. Data analytic tools can help to promptly support decision-making by the business at all stages, while customized digital dashboards can enable greater control and visibility over issues, questions, and risks. This can be a game-changer for the business, and for AWM tax teams too who benefit from a better work experience.

AWM companies, like other industries, are focused on generating greater ROI from deals. Tax managed service teams can leverage cutting-edge digital tools and know-how to seek significant value during the tax due diligence phase with respect to target company and funds.

Are we fostering our people?

People are your greatest asset. In an in-house role, it may be difficult to grow talent due to a lack of training, technology and budget. Tax managed services can yield life-changing benefits for rebadged employees who can remain deeply ingrained with all facets of their legacy AWM company while also expanding their skill set both technically and on other clients. We have a dedicated managed services team, so tax professionals rebadged to PwC have many other people just like them to learn from.

New opportunities can open for tax teams with tax managed services. Customized training can develop professional skills—meeting the person where they are now and could be tomorrow.

Executives are wanting more tax analysis and insights throughout the AWM life cycle. But many AWM tax team members are concerned about the everyday demands of tax compliance and monitoring US and global tax legislation. Tax managed services can enable a shifting of resources to focus more on investment management and strategic priorities of the asset manager.

The bottom line

Reimagining operational capabilities of AWM tax teams to better align with business priorities is quickly becoming an imperative. Tax managed services can be a powerful choice to not only fill gaps, but significantly boost what tax can accomplish while lowering overall spend. Whether it's targeted for one specific area or a more holistic arrangement for the entire tax function, tax managed services yield rewards not only for the entire business, but its people as well.