Episode summary
Why the Endowment Model Doesn’t Work for Taxable Investors
How I Invest With David Weisburd
· · 31 min · Hosts: David Weisburd · Guests: Aneet Deshpande
Summary
Taxable private investors cannot simply copy the endowment model, because cash flows, taxes, liquidity needs, and family objectives change the portfolio construction problem. Aneet Deshpande argues that the first step is not product selection but defining the number: how much belongs in private markets, how it will be sourced, and how pacing will work as commitments, capital calls, and personal spending needs emerge over time.
He says taxes can materially change outcomes, with poor asset location and product choice potentially reducing total returns by 30% to 40%. Aneet points to infrastructure and certain private-market structures as ways to convert income into return of capital, defer gains, and improve after-tax results, especially when estate planning can help extend the deferral.
The episode also stresses governance as the real edge. Aneet says families and institutions need codified investment policy statements, ranges instead of rigid point targets, and rules that prevent ad hoc investments from relatives or committee panic from overriding the plan. He also argues that private-market investors should underwrite managers net of all fees and recognize that the manager’s genius is often domain-specific, not transferable across every asset class.
Key takeaways
- Aneet Deshpande says taxable investors need a clear line of sight on asset allocation, taxes, cash flows, and family objectives before choosing products.
- He warns that bad asset allocation or asset location can destroy 30% to 40% of total return for taxable investors.
- Aneet says the three hardest endowment-style problems for private clients are sizing, sourcing, and pacing commitments over time.
- He argues that governance matters more than tactics, and investment policy statements with ranges give families and institutions flexibility.
- Aneet says the best private-market managers are often domain-specific, so manager “genius” should be underwritten carefully rather than assumed to be portable.
Notable quotes
“You have to have a clear line of sight on asset allocation around things like cash flows, taxes, financial plan objectives”
“you can you can lose 30 to 40% of your total return right off the bat”
“what is the right number? What is the number in terms of asset allocation that you're willing to put towards private markets”
“The biggest issue during times of distress is is denominator effect”
“if you don't know where you're going any road will take you there”
How the episode opens
What would most people be surprised about how you go about investing $15 billion in the market today? — You have to have a clear line of sight on asset allocation around things like cash flows, taxes, financial plan objectives that are oriented around the family zone desires that may not be um prescriptive such as a 5% mandate.
This rise of the taxable investor is a new phenomenon. It's such a hugely important phenomena going on and it's I think the segue a little bit into you know the de democratization of private markets and all of the different investment vehicles that we are seeing come into markets but you know this gets into a little bit of the how do you take a institutional-like framework and apply it to private clients. So it's one thing to be able to say hey we treat you as a multigenerational client the same way we treat you as a uh you know perpetual endowner foundation.
The reality is in past in history it used to be very difficult to take and express the same investment ideas you would have for that institution and employ that for a private client. Um I think in this day and age now if you set everything else aside so all else equal now we've solved that sourcing conundrum. So we have the ability to bring our own internally sourced private market um investments for all of our clients and we do so using technology and a couple of different relationships we have to create a simplified investment structure for for private clients.
You know, one of the nuances there is um that that perhaps didn't exist um you know, five even maybe even 10 years ago was being more tax aware in that process.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- tax-aware private markets
- endowment model
- asset allocation vs asset location
- governance and investment policy
- liquidity and capital calls
Watch the episode
Watch “Why the Endowment Model Doesn’t Work for Taxable Investors” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
