Qubit: JP Morgan Long-Term Capital Market Assumptions 2023
According to this report, venture capital will deliver an 8.5% annual return over the next 10-to-15-year investment horizon.
The report also states that:
Venture capital has the widest dispersion of return versus the rest of the private equity asset class
Private equity outperformed venture capital over a 40-year period
Venture capital IPO price-to-sales ratio over a 40-year period is 8.2x, valuations are reverting to the mean
“Our 2023 return forecast calls for venture capital to deliver annual returns of 8.50% over our 10–15 year investment horizon.”
“Although many investors assume that venture capital has outperformed over time, annualized returns since 1981 show that private equity has outperformed venture capital, primarily due to the higher volatility of venture capital returns (Exhibit 7). In the aftermath of the tech bubble collapse in the early 2000s, for example, venture capital saw outsize losses.”
“A return to a low interest rate environment, as seen in the expansion following the financial crisis, would support venture capital returns – a scenario that is implicit in our macroeconomic forecast. However, this will not happen overnight. Furthermore, given the extreme dispersion of returns across managers, we expect to see venture capital continue to marginally underperform private equity, as it has historically, with much higher return volatility. Investors need to be aware that venture capital remains a challenging asset class to navigate – and may not deliver returns commensurate with greater risk.”
Source:
Long-Term Capital Market Assumptions 2023
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