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Aperio Group: What Would Yale Do If It Were Taxable?

ibartman
edited September 2015 in Fund Discussions
From the bogleheads.org website...

Aperio Group: What Would Yale Do If It Were Taxable?

The phenomenal success of Yale's endowment has been an inspiration to many investors. However, if Yale’s endowment had to pay the same taxes as individual investors, its portfolio would be constructed very differently.

The referenced paper presents a simple model for incorporating tax considerations into a pre-tax asset allocation such as Yale's.

With illustrative examples, it demonstrates the profound impact that taxes can have on optimal portfolio weights as well as the interplay between taxes and risk.

Once taxes are included the model tends to lower allocations to tax-inefficient asset classes such as hedge funds and increase allocations to tax-efficient strategies. However, with optimal tax management, hedge fund allocation can still be preserved so long as their returns are uncorrelated with those of equity.

NOTE: Larry Swedroe's post at ETF.com (see below) is most approachable summary.

WHAT WOULD YALE DO IF IT WERE TAXABLE?
P Geddes, L Goldberg & S Bianchi, Aperio Group LLC

FULL PAPER, PUBLISHED BY APERIO, 2014
http://www.fwp.partners/wp-content/uploads/2015/04/What-Would-Yale-Do1.pdf

FULL PAPER, PUBLISHED BY FAJ FROM APERIO, JUL/AUG 2015
https://www.aperiogroup.com/resource/154/node/download

COMMENTARY, PRESTON D MCSWAIN @ FWP, MAY 2015
http://www.fwp.partners/ideas/what-would-yale-do-if-it-was-taxable/

COMMENTARY, LARRY SWEDROE @ ETF.COM, SEP 2015
http://www.etf.com/sections/index-investor-corner/swedroe-taxing-yale-model

(Thanks to Larry Swedroe's ETF.com commentary - cited above, which caught my eye, and Vegomatic's post at bogleheads.org website. I have re-arranged the post to conform to the conventions of the MFO board.)

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