See What Your Wealth Actually Keeps

What happens to investment returns after tax and fees?

Two portfolios with the same gross return can leave their owners in very different places. What separates them is not performance. It is what is taken out along the way, and what that money would itself have earned.

A portfolio is normally described by its gross return: what the underlying assets earn before anything is deducted. An investor never receives that number. Three things stand between it and the amount that reaches the balance sheet — management and fund fees, tax on income and realised gains, and the compounding that the fees and the tax would have produced had they stayed invested. The third is the largest and the least discussed.

Take the default portfolio in the instrument above: $50 million, a conventional allocation across public equities, fixed income, hedge funds, private credit, private equity, real estate and cash. It earns 7.05% a year gross. Fees take 90 basis points and estimated tax takes 124, so the annual return after both is 4.91%. Over twenty years the same capital compounding at the gross rate would reach $195 million. What the model actually retains is $123 million. The difference is one number in three parts: fees of $14.4 million, taxes of $25.1 million, and $32.9 million of return those payments would themselves have produced.

Put differently: half of the economic return the portfolio creates never reaches the investor. That share is what the instrument calls economic return retained, and it is the single most useful figure on the page, because it is unaffected by whether the market was kind. It measures the system, not the year.

How much can tax drag cost a large portfolio?

Tax drag is the reduction in annual return caused by taxation — not the tax bill, but the yield it removes. It is usually quoted in basis points because that is the only way to compare it across portfolio sizes. On the $50 million allocation above it is 124 basis points a year, or roughly $618,000 in the first year. That figure sounds survivable. Over twenty-five years, with the compounding it displaces, tax alone accounts for tens of millions.

Two properties make tax drag behave unlike a fee. First, it is decided by the character of the return rather than its size: an asset class that pays ordinary income and realises gains every year is taxed far harder than one that appreciates untouched, even at identical performance. Second, it compounds against you. Every dollar paid in year one is a dollar that cannot earn for the remaining twenty-four. That is why a 124 basis point drag is not a 3% problem over twenty-five years — it is a much larger one.

The Portfolio Tax Drag Calculator takes the same allocation apart sleeve by sleeve and shows where the drag actually concentrates. It is frequently not where the money is.

How does investing $10 million differ from investing $100 million?

The usual answer is access: at $100 million a family can hold private equity, private credit and hedge funds that a $10 million portfolio cannot reach, and those assets carry higher expected returns. That answer is correct and incomplete. The same allocation that raises the gross return also raises the cost of holding it, and the second effect is larger than most people expect.

Run both through the engine. A $10 million portfolio held mostly in public equities and fixed income earns 6.52% gross and 4.99% after fees and estimated tax. A $100 million portfolio with an institutional allocation — 50% in hedge funds, private credit and private equity — earns 8.08% gross and 5.40% after fees and estimated tax. The gross return improved by 156 basis points. The return the investor keeps improved by 41. Roughly three quarters of the additional gross return was consumed by the additional fee load and the tax character of the assets producing it.

The retained share moves in the opposite direction to the wealth: 58% of the economic return at $10 million, 35% at $100 million. Scale buys better assets and a worse retention rate at the same time. That is the argument for treating structure as a portfolio decision rather than an afterthought — and it is worked through with real figures in the four examples below.

Why portfolio structure matters more as wealth increases

Every cost in this model is proportional except one. Fees scale with assets. Tax scales with income and gains. Foregone compounding scales with both. But the fixed costs of a structure — the establishment work, the annual administration — do not scale, which means their weight falls as the amount inside rises. A charge that is prohibitive on $2 million can be immaterial on $40 million, while the tax drag it displaces has grown in exact proportion to the portfolio.

This is why the same structural question produces opposite answers at different sizes, and why a general rule about whether a structure is worthwhile is not worth having. What matters is the arithmetic between two numbers: the cost of the structure, and the drag it removes. The instrument reports both, in both directions, and refuses to prefer either.

How hedge funds and private credit affect after-tax returns

Alternatives are where the gap between a reported return and a retained return is widest. A hedge fund reports net of its own fees but before the investor's tax, and its return typically arrives as short-term gain and ordinary income — the most heavily taxed forms there are. Private credit reports a stated yield on assets, before the fund's fee load, before credit losses, before undeployed commitments, and before tax on interest that is ordinary income in the year it accrues, whether or not it is paid in cash.

Consider two $50 million portfolios over twenty-five years. The first holds 15% hedge funds and 12% private credit. The second replaces both with public equities and private equity. The alternatives-heavy portfolio earns the higher gross return — 7.91% against 7.59%. It ends $15.0 million lower: $168.1 million against $183.1 million. Its total drag is 253 basis points a year against 177, and it retains 41% of its economic return against 51%.

That is not an argument against alternatives. It is an argument for pricing them after tax, which is what the Hedge Fund X-Ray and Private Credit Real Yield instruments exist to do — fee terms, hurdles, high-water marks, defaults, recoveries, PIK accrual and character, one line at a time.

What happens after a business sale or liquidity event?

The distance between a headline sale price and the capital that reaches a portfolio is larger than almost anyone expects, and the largest single line in it is usually the one nobody prices: the months between closing and being invested.

A $120 million sale with a $3 million basis, after transaction costs, tax on the gain, $8 million spent at closing and a $5 million cash reserve, leaves $73.1 million of deployable capital. Federal, state and net investment income tax on the event come to $30.3 million. Then the proceeds sit. Held in cash at 4.20% — 2.44% after tax — against a portfolio modelled at 5.42%, twelve months of waiting costs $5.8 million by year twenty-five. Not the interest foregone: what that interest would itself have earned for the remaining twenty-four years.

The Liquidity Event Planner models the whole sequence — proceeds, costs, debt, character, charitable allocation, spending, reserve, and the cost of the delay — and every structural decision that follows is cheaper to make before the money moves than after.

When can PPLI improve long-term economics?

Private placement life insurance is a wrapper. It substitutes a set of charges for a set of taxes. Whether that is an improvement is arithmetic, and it goes both ways.

Take the $50 million allocation and place 40% inside a structure charging 0.45% a year on value, a 2% load on amounts placed and $40,000 to establish, measured to a death benefit at twenty-five years. The structure takes $8.76 million in charges and displaces $15.78 million of tax. It is ahead by $10.5 million, and it crosses into positive territory in year seven.

Now change two assumptions. Charge 2.2% a year, a 6% load, $250,000 to establish, and measure at a surrender in year twelve rather than at death. The structure takes $8.95 million in charges and displaces $4.90 million of tax. It is behind by $9.8 million, and it never crosses. Same portfolio, same engine, opposite conclusion.

The variables that decided it are the annual charge, the horizon, the exit basis and the tax character of what goes inside — not the wrapper itself. PPLI Economics and Break-Even isolates each one, and this site has no interest in a structure that does not pay for itself on the reader's own numbers.

What the arithmetic looks like at four sizes

Each example is a different portfolio, not the same one with the amount swapped: the allocation, the horizon and the economics all change with scale. Every figure below is produced by the same engine that runs the instrument above, on the assumptions stated.

Every one of these is a starting point, not a recommendation. Change the amount, the horizon and the seven weights in the instrument above and the same engine will answer for your own position in under a minute.

The same profile, examined six ways

The profile is the hub. Each instrument takes one part of it apart properly, and opens with the assumptions you have already entered.

The four analytical areas each hold their own overview: Portfolio Intelligence, Tax Intelligence, Alternative Investment Intelligence and Wealth Structure Intelligence, all under Wealth Intelligence.

How the analysis is built

The profile computes nothing of its own. Every figure it prints is an output of the shared Wealth Intelligence engine — the same functions the six instruments call — or an arithmetic identity between those outputs.

Each asset class is modelled with a gross return, a fee, the share of that return arriving as income, how much of the income is ordinary rather than qualified, how much of the appreciation is realised each year through turnover, and how much of the realised gain is short-term. Tax is applied annually at the effective rates you supply. Fees are charged on assets. Nothing is inferred from a stated residence: there is no tax-rate data layer behind such an inference, and inventing one would be worse than asking.

Definitions

Limitations

These are modelled estimates on stated assumptions, not forecasts and not advice. Returns are treated as constant rather than volatile, so no sequence-of-returns risk is expressed. Tax is applied at flat effective rates rather than through brackets, thresholds, carry-forwards, alternative minimum tax or state-specific rules. Withdrawals are treated as consumption and shown separately from leakage. Structural charges are whatever you enter — no carrier publishes a schedule for this class of business, so no figure here is a default in any meaningful sense. Nothing on this page is a recommendation to adopt any structure.

The profile is stored in your own browser. Nothing entered here is transmitted to PPLI.com or to any third party, and closing the tab is all it takes to remove it.

Research behind the numbers