Private Fund Tax Bills Can Wipe Out the Return Advantage

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The Wall Street Journal reports on research by John West, co-founder of Flatrock Wealth Partners, who asked how private-asset returns hold up after taxes are paid. West replicated a university-endowment-style portfolio — mixing public stocks and bonds with a heavy allocation to private assets — using comparable funds available to individual investors, and found the after-tax returns were poor. The implication for older investors is significant: private equity, private credit, and other alternatives are often pitched as return enhancers, but the tax drag (from pass-through income, short-term gains, and K-1 complexity) can erode the apparent advantage, making simpler, more tax-efficient public-market investments more competitive on a net basis.