Alternative Investment

R&D Tax Credits: The Alternative Investments Sector

The alternative investments sector has been one of the most prolific innovators of fintech in the past decade. Many alternative investments firms employ computer scientists, data scientists, developers, engineers, mathematicians, and quantitative researchers (“quants”) – all in roles wherein they typically conduct direct research and experimentation activities that qualify for the R&D tax credit. 

Hedge funds that trade in any of these asset classes: commodities, crypto, equities, ETFs, fixed income, forex, futures, or options, as well as commodity pool operators, typically have some proprietary software development that qualifies for the R&D tax credit. Private equity funds, real estate funds, and private money lenders may also be engaged in proprietary software development that may qualify. Richey May has partnered with Source Advisors to help you understand the qualifying activities.  

Your company likely qualifies for the R&D tax credit for alternative investments if it has developed any of the following tools or systems from scratch or has developed proprietary software to integrate third party tools and systems that provide these services. Additionally, efforts to improve the performance or functionality of these systems if they already exist can qualify as well. 

• Proprietary Systems that Interact with Third-Parties 
• Algorithms 
• Alpha Tools 
• Artificial Intelligence, Machine Learning, and Deep Learning 
• Asset Class Pricing Models (Equity, ETF, Commodity, Crypto, Fixed Income, Futures, FX, Options, RE)  
• Big Data 
• Business Intelligence Systems 
• Client Facing Systems 
• Cloud Infrastructure  
• Collateral Tracking System 
• Core Libraries and Technologies 
• Dashboards 
• Data Acquisition, Analysis, Development, Data Mining, and Normalization Tools  
• Exchange Connectivity or Gateway Development 
• Expense Analysis and Monitoring Systems  
• Feed Handlers and Quoting Systems 
• Financing and Cash Platform 
• Front, Middle, and Back Office Systems  
• Hardware, Infrastructure, and Network R&D 
• High Frequency Trading  
• Latency Optimization and Reduction Systems 
• Order Execution and Management Tools and Systems 
• Portfolio Management Tools and Systems 
• Portfolio Tracking and Analysis Tools 
• Predictive Analytics 
• Pricing/Relative Value/Volatility Tools and Systems 
• Quantitative Research Models and Tools 
• Real-time P/L and Reporting Systems 
• Regulatory and Compliance Systems 
• Research and/or Simulation Platforms 
• Risk Analysis Tools, Risk Management and Monitoring Systems 
• Shared Services 
• Simulation Environments 
• Strategy Automation 
• Trading Platforms 
• Workflow Automation 

A significant percentage of portfolio managers’ and traders’ time is spent providing the software development requirements to the employees engaged in the direct research and experimentation/development described above. The time PMs and traders spend in direct supervision of those employees’ research also qualifies for the credit. Employees who are involved in direct support of research (QA, IT, Operations) will also qualify. 

If you have any questions about the activities above or want to know if you qualify, please contact Steve Vlasak.  

About Source Advisors 

Source Advisors (formerly SourceHOV Tax) was the first boutique consulting firm to recognize that the fintech behind the “de-flooring” of the Chicago pits and the rise of the quants on Wall Street qualified for the R&D tax credit.  Since launching our fintech R&D tax credit practice in 2009, SourceHOV Tax has quantified and documented the research and development activities and expenses of some of the most innovative alternative investment companies in the world today.  Moreover, they have helped fintech clients claim and successfully defend on audit some of the largest fintech R&D tax credits in the US.