What Would Yale Do If It Were Taxable?

26 Pages Posted: 9 Jun 2014 Last revised: 11 Aug 2015

See all articles by Patrick Geddes

Patrick Geddes

Aperio Group

Lisa R. Goldberg

University of California, Berkeley; Aperio Group

Stephen Bianchi

University of California, Berkeley

Date Written: June 8, 2014

Abstract

The distinctive financial goals and constraints of ultra-high net worth individuals together with their aggregate growth in assets have led to the emergence of “New Institutional” investing, which includes the best practices from institutional investors but incorporates the critical element of tax management. We design New Institutional asset allocations that incorporate traditional investment metrics in a tax-aware setting. Specifically, we show how risk and after-tax returns need to be combined from inception when seeking optimal after-tax asset allocation. Diversification is especially important for a taxable investor, as low asset-class correlations can facilitate the inclusion of attractive but tax-inefficient asset classes in a tax-aware allocation.

Keywords: asset allocation, taxes, ultra-high net worth investors, endowments, hedge funds, tax-advantaged indexing, reverse optimization, equity-hedge fund correlation

JEL Classification: G11, G12, H24, H31

Suggested Citation

Geddes, Patrick and Goldberg, Lisa R. and Bianchi, Stephen, What Would Yale Do If It Were Taxable? (June 8, 2014). Financial Analysts Journal, Vol. 71, No. 4, 2015. Available at SSRN: https://ssrn.com/abstract=2447403 or http://dx.doi.org/10.2139/ssrn.2447403

Patrick Geddes

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

HOME PAGE: http://www.aperiogroup.com

Lisa R. Goldberg (Contact Author)

University of California, Berkeley ( email )

Department of Statistics
367 Evans Hall
Berkeley, CA 94720-3860
United States

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

Stephen Bianchi

University of California, Berkeley ( email )

530 Evans Hall
MC #3880
Berkeley, CA 94720
United States

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