Buyer Beware: Private Funds Come With Big Tax Bills
Financial advisers touting these hot funds aren’t always telling you what you need to know
By Jason Zweig, The Wall Street Journal, July 31, 2026
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Financial advisers could push $2 trillion of clients’ assets into alternative assets in the next five years, estimates Cerulli Associates, a consulting firm. These investments in private equity, private credit, real estate, venture capital, hedge funds and other nontraded assets might—just might—raise your returns. They almost certainly will raise your taxes…
How good are the returns on private assets after tax?
They’re lousy…
An index fund holding publicly traded stocks can generate almost no tax bills for as long as you own it, especially if it’s a broadly diversified ETF.
On the other hand, private-credit funds specialize in high-interest loans; many hedge funds trade rapidly, generating short-term capital gains; private-equity funds produce big payouts when they sell portfolio companies. Other alternative strategies, including private real estate, also tend to produce titanic tax bills.
In general, ETFs miniaturize your taxes. Private funds supersize them… [end quote]
The tax hit doesn’t even count the problems that many private assets are less liquid and aren’t even marked to market.
Wendy