After about a decade of significant outperformance culminating in a Covid boom, technology investors faced a sharp reversal this year. By the end of June, Nasdaq was down 29.5 per cent and the Goldman Sachs Unprofitable Tech index was down 52 per cent.
Yet one corner of the tech market was strangely unaffected. The US Venture Capital index compiled by Cambridge Associates was down only 12.5 per cent through the end of June (the last available data).
This gap between private markets and public markets is the largest since the bursting of the dotcom bubble more than two decades ago.
There aren’t many investors in VC funds complaining. Both they and the fund managers seem quite happy with the smoothed marks. It’s the volatility of public markets that seems outlandish and excessive, not the smoothness of the VC valuations. Yet perhaps this is not the costless ploy that it appears on the surface.
Consider an institutional investor looking to add growth/tech exposure at the start of 2020. They could choose between allocating to Cathie Wood’s Ark Innovation exchange traded fund or to a VC fund. The ETF was on a great run, beating both the Nasdaq and VC indices by about 15 per cent annually over the previous three years.
