How Gateway Investment Advisers powers tax-aware investing at scale with Axioma solutions

For nearly 50 years, Gateway Investment Advisers built its business around managing risk for taxable clients starting with options-based strategies and expanding into hedged equity and increasingly, tax-aware long-short. As that work grew more complex, so did the demands on their optimizer. By 2019, their existing optimizer had become the constraint they couldn't afford. 

Business case

Each added layer of complexity put more pressure on the portfolio construction process.

For 15 years, Gateway relied on a competing optimizer. But the firm’s tax optimization workflows, particularly the complex overlap rules governing its index hedging programs, required constraint customization that the existing tools could not support.  

"It was really an art for us to live with those constraints and we had to create a portfolio construction process that was less quantitative than ideal," explains Daniel Ashcraft, Senior Vice President and Portfolio Manager at Gateway. "The Axioma Portfolio Optimizer was able to solve that problem, which is something that our previous optimizer struggled with."

Solution

Gateway transitioned to using Axioma solutions in 2019. Since then, it has expanded its use across two core tools: Axioma Portfolio Optimizer and Axioma Equity Factor Risk Models.

Axioma Portfolio Optimizer
The optimizer sits at the center of every portfolio Gateway manages. Its ability to incorporate highly specific tax and compliance constraints was the primary reason Gateway made the switch. The firm uses the graphical user interface (GUI) for complex, iterative mandates and the API for scaled, automated workflows.

A key capability for Gateway is the optimizer’s Multi-Portfolio Optimization (MPO) in-built feature, which allows the firm to manage multiple accounts belonging to the same taxpayer ID simultaneously. Wash sales, constructive sales and cross-account tax interactions are handled within the optimization process itself rather than managed case by case.

"There’s no other optimizer that can handle those rules or that level of sophistication," says Ashcraft. "In fact, we haven’t run into a situation where the Axioma solutions we subscribe to can’t solve."

Axioma Equity Factor Risk Models
Gateway uses both the Axioma US and global multi-factor equity risk models to express specific style factor tilts across its product range: quality-focused ETF, core mutual fund and tax-aware long-short strategies. When upgrading from version 4 to version 5 of the US domestic models, the firm conducted rigorous analysis and found measurable performance improvements across its quality-oriented portfolios.  

"We use a lot of the out-of-the-box style factors that come with Axioma risk models," explains Ashcraft. "We weight things in a specific way, but a lot of those figures are coming directly from the Axioma research.”

API-first architecture at scale
Unlike many optimizers, the Axioma Portfolio Optimizer is built API-first. That same API available to clients underpins the GUI itself, giving firms like Gateway the full flexibility of the underlying engine. As Gateway’s SMA book grew from a small number of collective vehicles to approaching hundreds of individual accounts in under 12 months, the Axioma API became a core part of its operating model. Running multiple daily optimizations per account, with dynamic risk thresholds and rebalancing triggers built in, requires automation the GUI alone cannot provide. Instead, the API handles everything at scale while the GUI remains the right tool for complex, iterative mandates.

"The only true way to scale a business when you go from tens to hundreds or thousands of accounts is through technology. The API allows us to do that," says Ashcraft. 

Business benefits

• Rapid SMA account growth over a year: Gateway grew from a small number of collectively managed vehicles to hundreds of SMA accounts in under 12 months. Having Axioma tools in place meant Gateway could hit the ground running with the ability to handle complex tax rules and MPO at scale.  
• Close to USD 1 billion raised in new strategies: New product lines, particularly tax-aware long-short SMAs, have driven the majority of Gateway’s recent asset growth. Axioma solutions support the complex tax rules these strategies require.  
• Manual constraint management replaced: Custom overlap rules for Gateway’s index hedging programs are now handled within the optimization process itself, replacing a workflow that had required significant manual tradeoffs.  
• Pre-tax and tax alpha as a competitive differentiator: The Axioma factor risk models and optimizer work together to support Gateway’s core value proposition to taxable investors: consistent after-tax returns. 

Working relationship

As Gateway scaled its SMA business, the Axioma team adapted its way of working to support a firm in growth mode, providing dedicated assistance through MPO configuration and ongoing workflow questions that has been central to how the firm has built out its SMA practice.  

When Gateway needed additional data incorporated into its risk models, a configuration that had not previously been available, the Axioma team delivered it quickly.

"The Axioma team have also been great commercial partners,” notes Ashcraft. A lot of the things we’ve done over the last year would have been much more difficult without their willingness to support our growth journey.”