Hedge Fund Pain Compounded as Surprise Tax Hit Awaits Investors

A surprise tax blow could be looming for investors in hedge funds such as Point72 Asset Management.

President Donald Trump’s tax law curbs the coveted deductions that most businesses were allowed to take for the interest they pay on loans. During the tax overhaul debate, private equity firms were the fiercest critics of the provision, arguing it would change the calculus for their deals that often rely on debt.

But buried in 439 pages of proposed regulations released by the Internal Revenue Service last month was an unfortunate surprise for investors in so-called trader hedge funds like Point72, which trade ...