Is There 'Smart Money' After All?
In 2019, hedge fund returns again underperformed the S&P500; the Barclay Hedge Fund Index came in at +10.63% last year, whilst the S&P500 returned an extraordinary +31.49%. Whilst I know that it’s not an apples to apples comparison - there’s little point comparing credit hedge fund performance to stocks, for example - this comparison did prompt me to look at private equity and venture capital performance to see how they compared to not only the S&P500 but their hedge fund cousins.
What I wasn’t expecting to find is that private equity and venture capital beat the S&P500! Two indices developed by Chicago’s DSCQ Group in partnership with Refinitiv (formerly Thomson Reuters), namely the U.S.-focused Thomson Reuters Private Equity Buyout Index (TRPEI) and the Thomson Reuters Venture Capital Index (TRVCI) (also U.S.-focused) delivered some very impressive results in 2019. The TRPEI is a private equity replication index which uses a combination of liquid, publicly traded securities to replicate the gross performance (i.e., before fund fees) of the U.S. private equity industry, and the TRVCI is the venture capital version. Both outperformed equities and hedge funds last year.
The returns statistics are even more impressive than the VAMI chart, with the TRVCI delivering more than 50% last year.
2019 was not the only good year for these indices. The results have been quite impressive going back to the origin of these indices, October 2012 for the TRVCI, and January 2014 for the TRPEI. Also, due to the considerable difference in volatility, we think it is fair to consider the common time frame (2014 and on) on a risk-adjusted basis (normalizing volatility for all indices to 15% annualized):
The Venture Capital Index is delivering particularly outstanding results. Even in the age of central bank-propped equity markets, it looks like there is such a thing as “smart money”, after all.
Dmitri Alexeev is Founder and CEO of AlphaBot, a collaborative platform for alternative investment research.
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