Investors in private assets need to be mindful about costs, extensive diversification, and manager proliferation. Hiring myriad managers does not ensure they will be winners collectively. To the contrary, the law of averages works against investors.
For the vintages 2007 – 2016, funds of funds delivered a Sharpe ratio of 1.9x, clearly outperforming the average of buyout funds with a Sharpe ratio of 1.2x. Funds of funds do seem to be earning their fees through astute manager selection and robust portfolio construction and risk management.
Returns for 60/40 long-only strategies are driven primarily by the asset class itself rather than by the performance of top managers. Unlike 60/40 strategies, returns for investors in private assets are critically determined by access to the best managers.
The average dispersion from median to top manager has been 3.3% for traditional 60/40 long-only strategies. Dispersion for private equity is 21.2% and for venture capital, a staggering 33.3%.
In venture capital, the name of the game is access. That is why we regard venture capital as an access class. No premium access, no premium returns above the median. To get top results, you need top access.
AltamarCAM’s CEO José Luis Molina discussed the current situation in private markets at the SuperReturn International last June, including how the current macro situation could affect private markets.
José Luis argued that these are times for investors to be cautious and patient because of geopolitics, inflation, rising interest rates, etc. Nonetheless, this environment is usually a good time to find good investment opportunities.