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Have Public Market Returns Permanently Eclipsed Private Market Returns?

Andrea Auerbach

No, while the public market’s outperformance may seem like a total eclipse, this one, like all eclipses, will be temporary.

At present, short-term private equity returns do not compare favorably to those of public benchmarks. For the nine months ended September 30, 2023, global private equity and global venture capital underperformed the MSCI ACWI on a public market equivalent basis to the tune of 500 basis points (bps) and 1,400 bps, respectively. And, based on the strong public equity market performance through year-end 2023, as we wait for fourth quarter private investment numbers to finalize, we expect this pattern to continue.

Private investment managers incorporate public market comparables to varying degrees into their investment valuation methodologies, so it is not unusual to see private company valuations move somewhat in tandem with those of the public markets. However, this relationship often severs during extreme periods when the public markets move like an express train in either direction (up or down) due to rapidly processed information. Private markets move more like a local train, processing information (and incorporating it into valuations) on a quarterly basis. In 2023, fueled by a rally in the “Magnificent Seven” tech stocks and boosted by enthusiasm around artificial intelligence, the public markets quickly revalued upward, hitting new highs on a regular basis.

By contrast, the private markets continued to incrementally revalue downward from their arguably inflated 2021 highs and remained decoupled from the public markets. Global private equity valuations declined, then leveled out in 2023, but have not improved further. Global venture capital valuations continued their downward trend in 2023, lagging even further behind, as valuation “resets” in venture often happen during subsequent financing exercises, whenever they occur. With the percentage of flat or down rounds nearly doubling in 2023 from levels in the prior two years, many venture-backed companies have tried to delay that “reset” moment for as long as possible by conserving cash. One way to conserve cash is to reduce headcount. In fact, in 2023 there were 18x as many tech layoffs globally than in 2021, a clear indication many companies tried to hit the snooze alarm on raising another round.

It doesn’t help matters that the underperformance relative to publics has occurred during a private markets “distribution drought.” Distributions to limited partners (LPs) have fallen to their second lowest point for global private equity and their lowest point for global venture capital in more than 20 years, based on our distribution yield analysis. 1 Many investors are experiencing the dearth of returned capital from their private investment programs at the same time as program returns are underperforming relative to public markets, raising questions about the value of private investments in a program at all.

The longer the distribution drought continues, the greater the pressure on general partners (GPs) to return capital to LPs, preferably at acceptable levels of return. While that pressure is building, it is worth noting it takes an average of nine and ten years, respectively, for global private equity and global venture capital funds to distribute 1.0x the capital that has been paid in (DPI), which is essentially the same thing as returning cost back to investors. This underscores the time it takes for the private markets to deliver on expectations. The drought will end, but it won’t happen overnight. GPs can’t legally hold on to their investments forever, and delaying exits too long will impact internal rates of return and hinder their ability to raise subsequent funds. One hopeful development in 2024 is the cost and availability of leverage are becoming more favorable, combined with revalued investments, could potentially result in more transaction activity in 2024 and, therefore, more distributions.

Experienced LPs understand private investing is a long-term strategy with performance tracked in years, not days or even months. Zooming out from the one-year return and refocusing on timeframes where private market returns are better expressed, global private equity and venture returns delivered nearly double the equivalent public market performance over three-, five-, and ten-year periods. That said, short-term public market eclipses do occur, so this moment will happen again; over the last 33 years, one-year public market returns have bested global private equity returns nine times and global venture capital returns 14 times. These eclipses can obscure the contributions private investments make to a program. They are only temporary.


Andrea Auerbach, Head of Global Private Investments


  1. Cambridge Associates defines distribution yield as distributions to LPs divided into beginning net asset value.


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Cambridge Associates is a global investment firm with 50 years of institutional investing experience. The firm aims to help pension plans, endowments & foundations, healthcare systems, and private clients implement and manage custom investment portfolios that generate outperformance and maximize their impact on the world. Cambridge Associates delivers a range of services, including outsourced CIO, non-discretionary portfolio management, staff extension and alternative asset class mandates. Contact us today.