How I Invest with David Weisburd
E313: Why the Endowment Model Doesn’t Work for Taxable Investors
26 Feb 2026
Chapter 1: What investing challenges do taxable investors face?
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's own desires that may not be prescriptive, such as a 5% mandate.
This rise of the taxable investor is a new phenomenon.
It's a hugely important phenomenon going on. And it's, I think, the segue a little bit into the democratization of private markets and all of the different investment vehicles that we are saying come into markets. But 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 multi-generational client, the same way we treat you as a perpetual endowment or 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.
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 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 private clients.
One of the nuances there is that perhaps didn't exist five, even maybe even 10 years ago, was being more tax aware in that process.
At the low end for coastal clients, then it could mean 35% difference in return. So you get a 15%, now you're 10%. At the high end, it could mean 15% to 8% if you're investing in hedge funds or private credit that have the short-term income.
Part of the response to that is not only different products and structures, but also being very thoughtful about how they're deploying those investments and generating returns, be that vis-a-vis capital gains or through the income lens. And to your point, if you don't appropriately asset allocate or asset locate those investments, you can lose 30% to 40% of your total return right off the bat.
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Chapter 2: How does the endowment model apply to private clients?
Therefore, there's a step up in basis and then you defer that capital gain even further. So a little small myopic way of dealing with taxes from an income seeking agent.
And that seems to be a lot of the tax strategy, which is either defer for decades where the net present value of those taxes are essentially near zero, but you still technically pay the taxes or die. And then your kids get the stuff up in basis. Many private investors use the endowment model language when they talk about their portfolio, but they don't really apply the principles.
What are most private investors missing when it comes to applying the endowment model to their own approach?
I'll give you three challenges. So one, what is the right number? What is the number in terms of asset allocation that you're willing to put towards private markets? The second is, okay, you've got the number. How do you source for it? How do you make sure that by locking up the liquidity, you're getting a better than public market outcome? And then pacing.
So in private clients, we have, I'm going to buy a house. I have to fund college. We had a family member pass away. We are buying this small business. We have these other tax considerations. We have all of these investment cash flows. Whereas an endowment may just simply have, hey, we have to spend 5% of what it looks like over the next year.
So pacing becomes very important to how am I going to build to that number once I describe that number. Those are the three, I think, biggest challenges in taking what we would say is the traditional endowment approach and applying it to product clients.
There seems to be this trend in alternatives away from this 2 in 20 model into different things. Independent sponsors, co-invests, even CVs and continuation vehicles fall under this trend. Do you think this trend is here to stay? And if so, how are you able to capitalize on this?
The pick in the Python moment for private equity is real. So you have a general exit problem. So things look a little bit better than they did, say, 12 months ago, 24 months ago for certain. But CV is going to play a role.
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Chapter 3: What role do taxes play in portfolio construction?
There's no question about it in that world. And for those trophy assets where we are working with sponsors that we know can continue to extract value relative to public markets, those are interesting opportunities. And they will continue to be interesting opportunities.
Again, I think the spread of outcomes there is going to be very wide, as you'd expect, similar to what we would see in traditional buy out of growth, but that's something that's out there. Co-invest, you know, interestingly, co-invest is There's almost two versions of this.
One, there's co-invest strategies writ large, and they want to invest dollars into co-investment funds and take advantage of getting private equity-like returns without the fee burden necessarily. So there's that component. There's also just the increasing component of co-invest opportunities that are arising from a lot of late-stage unicorns in the market. And this is, again,
they need exits, they need to deploy dollars, and they're looking beyond the traditional VC realm to be able to track those dollars. And they're looking at RIAs as a functional part of where to get that investment, those capital commitments. And so you're seeing a lot of, you know, buy everywhere moment here on SPVs, but you're seeing a lot of co-investment deals get structured with
but GPs that you may not have historically worked with. And you have to ask yourself the question, why am I seeing that at co-investment opportunity, obviously. But for us, we've seen more and more of our, I would say, our higher conviction GPs that we are currently invested with bring us an increasing number of co-invest ideas.
Is it the two, the management fee, the 10-year 2% that bothers you, or is it the 20% carry? What is it that bothers you exactly?
I don't know that either one of them bothered me, to be completely honest with you. Whenever we underwrite, we always think about the world on a net of fee basis, net of total fee basis. And so we have underwritten expectations that we expect out of strategies. One of the reasons why we re-up with managers is because they've hit those buggies, generally speaking.
And so we like to stick with proving managers that we've invested with. But I think for your average manager, RIA or indiscriminate investor that doesn't know how to measure what success may look like on an after-fee basis, after-tax too, for that matter, simply optimizing for lower fee on the front end is rationale to go after that investment.
So I think, yes, it's good, but it's also, but be careful.
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Chapter 4: What are effective strategies for maximizing after-tax returns?
Of course, I think what happens a lot of times is the market's in disarray or something's going on when you do get those calls. And so the question that becomes more muddied, do you sell a depreciated asset in your growth assets to fund that? In other words, just to put a finer point on this, do you sell your S&P 500 position to fund your buyout growth, your growth equity asset?
commitment that you've just been called for. Ordinarily, we would say, yeah, that makes sense. The reality is, if the market's down 20%, the S&P 500 is down 20%, you just start to have these probabilities start to go in your favor of keeping money there instead of taking money out.
And so you have a different problem there of sourcing from maybe relatively appreciated assets or assets have done better than the growth asset that you've just talked about. The biggest issue during times of distress is denominator effect. In times of duress, you have public markets are decreasing and your private markets are staying relatively intact for all the reasons we know.
And so you have a higher proportion of private assets than you would have otherwise normally thought prior to that decline in public markets. So that causes a little bit of friction too.
You're not keeping the money in cash. You're keeping it at some asset that is liquid. And then as the capital call comes in, you're transferring out of that asset.
The nuance there is for short duration strategies that we may be deploying it, cash is probably the right thing. If you're talking about private equity, the six-year investment period, that's a different liability construct. So it really is just, it should be dependent on what that investment period looks like, informed by your own pacing assumptions.
And so you don't want to, the scenario you don't want to be in ultimately is a short duration liability, basically the capital got funded by a long duration asset like public equity. That's where you have to be mindful of.
In this denominator effect, essentially public markets go down, your private markets on a percentage basis are now a larger part of your portfolio. Why not just under-allocate to private markets ahead of this, knowing that there'll be this drawdown in the next 10 years? Or what other tools do you have to solve for that?
Let's use today as a good example. So the S&P 500 has been up, you know, it's doubled in five, four, five, three, four, three and a half to five years, whatever it is, it's up, you know, double digit percentage points, 20, over 20, over 2018, whatever it was last year. And combine that now with the fact that you've had realizations anemic.
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Chapter 5: What challenges do private investors encounter with the endowment model?
Investment policy statements are and should be a key front end deliverable for clients. To your point around the ranges, that's a very, very, very important thing. What gets lost, I think, a lot of times in markets is the power of momentum. And if you rebalance too much, you lose the momentum effect. And that can be meaningful for people.
So this idea that you want to be so precise every day and tout that as an asset sort of sets aside the fact that there's this thing called momentum and that you may actually do better by letting it run a little bit before rebalancing. So you can quantify some of this stuff, obviously, but those things are real. And having things like ranges in your IPSs allow you
not only operational flexibility, but rebalancing flexibility and then investment flexibility for us as decision makers to be able to make decisions and not be held to an Excel sheet for all intents.
Yeah, the 10-person IC, there's always that one bad apple, especially when the market's down 20%. It only takes one panicked IC member to destroy the entire investment policy. Instead of ruining that, you have to really think from the corporate governance side. And I think Few institutions have really gotten this right, like Alaska Permanent, URS, Utah Retirement Systems.
And instead of sitting around hoping that human nature won't surface its ugly head again, they created these governance awaiting this kind of next crisis and making sure that the investment team itself is able to navigate some of these difficult times without kind of being captured by the IC.
Yeah, yeah. And that's so true. You have to have a source or a document that will outlive the trustees of a given and the employees of a given institution. It reinforces the permanent nature of those pool of assets.
What's some of the best practices that it comes to families that are looking to preserve their wealth over several generations? What are some governance principles that they could institute in order to avoid what I would call the nepo baby or other issues that might come downstream? Not that it ever happens, but just theoretically speaking. Hypothetically.
Yeah, that's a great question. All of this work is on the front end. I mean, so you have to have familial buy-in. It's education. It's educating not only Gen 1, but Gen 2, Gen 3, wherever you are in the life cycle of of the family.
And so that's not only getting everything lined up with a advisor, making sure there's relationships built across the firm, that there's trust there, that you have all of these documents in a single place available for all the generations to build an access pool, et cetera.
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Chapter 6: How do governance and pacing impact investment decisions?
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When families come to you and they've had a bad experience with another RIA or another multifamily office, what are the most common one or two governance issues that were done at this other advisor that you just see happening over and over and over again?
yeah no not clear documentation is one that's that's clear just making investments ad hoc some family member comes in i want to invest into this this private equity like look at this just direct investment can you please look at this it's you know it's a it's either a real estate deal down the street or it's a buddy's you know venture um idea that he's raising for past the hat and um
So putting parameters around that is very important. And again, it goes back to the governance of documentation and ensuring why are we investing in certain things? Who has say in those investments is obviously a very important thing. Creating an investment committee or an investment advisory function or something that can rest within the family also is something of importance.
But the scattershot, the buckshot, David, investments is probably the biggest thing where you have a, just because you have amassed a ton of wealth doesn't mean you should be aloof about asset allocation. And the mistake number is just also not willing to deal with a single provider. And I know it's very difficult. There's relationships involved.
You may have a business with your own relationships there. And so how do you find a resource for you that can bring all of this together? because it requires a deep middle and back office and significant amount of operational resources to go do that. And majority of firms out there or, you know, single advisors aren't prepared to do that, don't have resources to do that.
So that's another area I'd say.
It says there's a related, which is you make random investments and you don't even know which random investments you've made.
Yeah, that's exactly. And, you know, the hard part is if you have a collection of private investments, what does that collection even look like? From getting fund updates to understand what portfolio companies are doing, if they're fund level, if it's private investments, what are your exposures and how does that roll up into your broad overall asset allocation?
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Chapter 7: What are the emerging trends in private market investing?
That is just simply giving people access to you know, things that would have ordinarily been in the public market. And so, you know, that's, you know, I'm gonna call it whether that's being able to talk about, you know, your investment in SpaceX at Saturday night at the country club or otherwise, I think that those are a little bit separate.
You're going to have more systematic co-invest opportunities. And it seems like we've seen a couple of platforms and I, I'm excited to see where this goes in the next, you know, 12, 18 months.
SpaceX is an interesting thing. It went from a family office trade to an institutional trade. So some would argue a family office trade again.
And that's where you got to be careful of, you know, back to the comment by saying you have SPVs being launched all over the place with blind access. In many cases, they don't have access. And you have multi-layered SPVs with fees upon fees upon fees upon fees. Like, what outcome do you expect in that if you're a SpaceX investor on a multi-layered SPV? Like,
If the thing doubles, now we're talking a $2 trillion company or whatever it is, one, that's got to be your underwrite. And then two, you have to net out the fee burden of all that stuff. And then, okay, is that a rational investment? It starts to get tough.
I mean, we're simply looking at, I think, the retail market now being a liquidity mechanism for a lot of now employees with tenders and other institutions.
Yeah.
I think you have to be careful there, but certainly it hasn't changed, I don't think, the appetite from private clients to want to get exposed to these companies. And that's an outlier. There's plenty of other firms out there, late-stage firms that are interesting.
The only thing worse than 2 and 20 is 2 and 20 on a 2 and 20, 4 and 40. Unless, I guess, you're in Citadel or back in the day, Stephen A. Cohen. And then it might make sense. You started out as a trader in 1999.
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Chapter 8: How can families ensure wealth preservation across generations?
And like finding the manager's genius, I think is such an underrated thing. And it's only obvious in retrospect. It's like, of course, Bill Ackman is a great investor. Yes, but he's very great in this specific domain. And if you had put him in another domain, he maybe not have wouldn't have been as great and maybe still be top core topic. He wouldn't be the lack of.
Yeah, it's so true today and it permeates, I think, a lot of manager due diligence processes today where you may have a process that eliminates that sort of genius because you can't handle that kind of key man idiosyncratic risk inside of your underwrite. And that's a tough thing. I mean, we've taken the approach that we find smart people, we invest with them.
You know, you can make sure a lot of other things are right, but if you take a committee to everything, you will dilute yourself in the value of the investment down to You know, it's lowest common denominator, which is medium-like outcomes, if not worse. So I think that's a very, very, very important part.
Yeah, that's so interesting. Key man, so much of this is just framing. It's so important when I speak to my partner, I'm so cautious not to frame certain things in certain ways. They just come out of your mouth. And there's very few actually terms that are neutral. Key man risk. Genius.
Yeah.
Those are pretty leading terms and frames to put on somebody. And yeah, we don't have this whole thing where it's very hard to actually frame things neutrally. And that downstream consequence is how we think of it and shape our strategy.
Yeah. And to your point, I think there's, you know, for being in my seat or our seats, we're allocators. We're, by definition, generalists. Our job is to preserve and grow client capital, not create a bunch of asymmetric wealth. You know, our client's already done that in real economy.
And so there's a nuance there, too, of making sure that we are able to find those people that we are generally not, but also have the discipline to create a process that can be sustained, repeated, and drive success for clients. So that's the punchline for being an allocator versus being a bottoms-up investor in a certain asset class, like the Buffetts and the Ekmans.
Have you found that in your own managers that almost their strength is their weakness. What makes them really good at what they do, they would be very bad in other contexts. Or it comes with this kind of double-edged sword where they have other weaknesses that if they were in other verticals, they would be bottom quartile.
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