Asset Allocation is one of the key portfolio construction decisions as it determines investment returns over the long term. Depending on risk-return profiles, investors in Alternative Investments can decide between different strategies – Private Equity, Venture Capital, Private Debt, Secondaries, Funds of Funds, and so on, each with its own characteristics.
The data below covers funds in vintage years 2004-2017, which are already in the mature stage and the results are meaningful. The chart below summarizes the performance of various strategies – one can notice high dispersion between the top and bottom quartiles (25% / 75%), and a wide range for the top and bottom deciles (10% / 90%):
– Venture Capital can provide the highest returns if investors are able to get access to the top managers, which are always oversubscribed. VC funds benefit from the flywheel effect as the best founders are looking for top VC funds, which in turn helps with the next investments.
– Private Equity Buyout funds have higher median returns and lower dispersion.
– Real Assets / Infrastructure funds provide lower returns but with more predictable cash flows.
– Fund of Funds show more moderate returns given fee layers.
Source: PitchBook
Leave a Reply