Trevor Noren@trevornoren
WSJ: "If you want to make the Internal Revenue Service happy, invest in a private fund...Over the 10 years ended March 31, a simulated endowment portfolio [with some public stocks and bonds, plus loads of private assets] would have returned 8.6% annually, pretax. After federal and state taxes, West estimates, an upper-income investor would have earned only 6.6% annually after tax. A simple basket of three funds investing in public assets—60% in two stock-index exchange-traded funds, 40% in a municipal-bond fund—would have earned almost the identical return pretax. After tax, it would have returned 8% annually, crushing the endowment portfolio...In general, ETFs miniaturize your taxes. Private funds supersize them."
Meteoric AUM growth has eroded private market returns as more capital has chased the same opportunity set. As I detailed in my October report on "The Retailization of Private Markets" (sageroadresearch.com/collections/re…): "Since 2009, US public equity returns have essentially matched returns from US buyouts at around 15%. US buyout returns have converged with public equity returns over the current cycle, closing a three-decade gap in performance." As for private credit, its illiquidity premium has been in steady decline for more than two years. As BDC turmoil this year has illustrated, when retail investors don't fully understand the implications of private market allocations, the backlash can be swift and severe. Tax implications are part of that equation, not just lock outs.
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WSJ link: wsj.com/finance/invest…
