Financial advisers are increasingly pushing clients toward private funds, which invest in assets like private equity, private credit, and real estate. While these investments may offer higher returns, they "almost certainly will raise your taxes."

An estimated $2 trillion in client assets could flow into alternative assets over the next five years, according to Cerulli Associates. However, a new analysis by John West of Flatrock Wealth Partners reveals that after factoring in taxes, the returns on private assets can be significantly less appealing.

West replicated a typical endowment portfolio, including substantial private asset allocations, using funds accessible to individual investors. His findings suggest that the tax implications of these private investments could negate much of their potential after-tax gains, a crucial detail often omitted by promoters.