Except here, we&#x27;ve got an entity that engages in two activities, one of which is for policy reasons tax-exempt (holding stocks in a mutual fund) and one of which is not (investment management).<p>Say a non-profit hospital ordinarily purchases services from a for-profit testing lab. The testing lab receives market-rates for its services, and pays tax on that income. Now, say the hospital purchases the testing lab, but continues to operate it as a for-profit subsidiary. But the hospital makes the subsidiary sell its services at cost, eliminating the subsidiary&#x27;s tax liability while boosting the hospital&#x27;s non-taxable surplus. Maybe that&#x27;s still okay. But now say instead of a testing lab, the subsidiary is an advertising agency. Same result?<p>It&#x27;s worth reading Matt Levine&#x27;s take on this: <a href="http:&#x2F;&#x2F;www.bloombergview.com&#x2F;articles&#x2F;2015-11-25&#x2F;calpers-fees-and-culture-consultants" rel="nofollow">http:&#x2F;&#x2F;www.bloombergview.com&#x2F;articles&#x2F;2015-11-25&#x2F;calpers-fee...</a> (scroll down to &quot;Vanguard and taxes&quot;).