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2024 Market Overview

Definitions and Disclosures

Portfolio Construction

The chart below has appeared in every overview and makes its way into numerous presentations throughout the year.

Performance

It tells a story that probably warrants constant retelling, because it goes to the heart of why portfolio construction matters:

  • Most strategies are, on average, where you’d expect them to be in the rankings. Equity on top, credit and real assets lower down. There are some years that run counter to that trend, but it is really hard to pick those years ahead of time. Developing a plan and sticking to it is the best way for most investors. Timing the exact movements is foolish.

  • Don’t lose sight of how impressive “All PM” returns are every year. You are doing pretty well being average. Really well.

  • Also, don’t lose sight of how hard it is to lose money in fund investments. There’s a view that private investors lose money all the time. They don’t. (Here’s one of those fact vs. fiction debates we hinted at in the intro. Fact 1; Fiction 0.)

  • Think carefully about your risk/return targets. Many investors love to trash standard buyout, particularly the larger funds. We don’t like to say this in polite company, but there are even years when larger funds have bested their smaller peers. (Go ahead and take a moment to compose yourself after that shocker.) Buyouts never show up as top performers over the last 15 years. But, guess what? They don’t show up as bottom performers either. They are steady and perform consistently very well. Again, you could do far worse as an investor than someone who simply puts all their money in boring buyout and goes into Rip Van Winkle mode for the next decade.

Interested in learning about the data & tools that power our insights?
Connect with our Technology Solutions team

Where Are We Now?

We are asked constantly whether now is the time to invest in private equity. The answer (for the last almost 25 years) is, yes, now is the time. Let’s look at a few ways to assess performance.

Periodic Table of Returns
pooled irr by vintage year

Dispersion of Returns by Strategy
BY VINTAGE YEAR GROUPINGS; ORDERED BY LONG-TERM SPREAD OF RETURNS

This chart tells you two things, one of which you already know: There are significant dispersion differences among the various private investment sub-categories. Investors can become enamored with a portfolio stuffed with venture, growth and small buyout. Sure, everyone should consider some exposure because the returns can be so much higher than other categories. But so is the risk. We are always amazed, by the way, at how secondary funds, that so many use as J-curve mitigators, are actually risk/return enhancers. 

Now for the second thing. We constantly hear the refrain that, as private markets grow, the dispersion will decrease as the markets become more efficient. What we show in this chart is the difference in that dispersion from the years 1979 to 2009 compared to the last 11 years. If that efficient market theory were true, we should expect the light blue bar to be far higher than the dark blue bar. So, are we operating with facts or fabricated theories? Dispersion of private equity returns has come down by so small an amount that it is hardly worth considering. Only distressed credit and natural resources saw any substantial decrease.  Real estate experienced some spread compression, but the larger spread in earlier years was driven primarily by GFC-era funds. Surprised? There are probably numerous theories that the theorists will propose because that’s what theoreticians do, but for those of us who invest, the data is clear: There is not increasing efficiency in the majority of the private markets.

You knew we’d get to risk, right?

Highest 5-Year Annualized Performance

Let your eye wander down to the bottom set of figures. Cowabunga! The conventional wisdom is that private markets are risky, and you can lose so much money. (Like, so much.) What’s the reality? Over the worst five-year period in developed markets buyout, private credit and infrastructure, you didn’t lose any money. Let us say that again. You. Didn’t. Lose. Money. That is not true of any other investment area. Aha, you say, well I sure must have given up some upside to get that amazing downside protection. Nope. Better upside. Better downside. 

LOWEST 5-Year Annualized Performance

2024 Market Overview

hamilton lane logo

Definitions and Disclosures

Portfolio Construction

The chart below has appeared in every overview and makes its way into numerous presentations throughout the year.

Performance

It tells a story that probably warrants constant retelling, because it goes to the heart of why portfolio construction matters:

  • Most strategies are, on average, where you’d expect them to be in the rankings. Equity on top, credit and real assets lower down. There are some years that run counter to that trend, but it is really hard to pick those years ahead of time. Developing a plan and sticking to it is the best way for most investors. Timing the exact movements is foolish.

  • Don’t lose sight of how impressive “All PM” returns are every year. You are doing pretty well being average. Really well.

  • Also, don’t lose sight of how hard it is to lose money in fund investments. There’s a view that private investors lose money all the time. They don’t. (Here’s one of those fact vs. fiction debates we hinted at in the intro. Fact 1; Fiction 0.)

  • Think carefully about your risk/return targets. Many investors love to trash standard buyout, particularly the larger funds. We don’t like to say this in polite company, but there are even years when larger funds have bested their smaller peers. (Go ahead and take a moment to compose yourself after that shocker.) Buyouts never show up as top performers over the last 15 years. But, guess what? They don’t show up as bottom performers either. They are steady and perform consistently very well. Again, you could do far worse as an investor than someone who simply puts all their money in boring buyout and goes into Rip Van Winkle mode for the next decade.

Interested in learning about the data & tools that power our insights? Connect with our Technology Solutions team

Highest 5-Year Annualized Performance

Let your eye wander down to the bottom set of figures. Cowabunga! The conventional wisdom is that private markets are risky, and you can lose so much money. (Like, so much.) What’s the reality? Over the worst five-year period in developed markets buyout, private credit and infrastructure, you didn’t lose any money. Let us say that again. You. Didn’t. Lose. Money. That is not true of any other investment area. Aha, you say, well I sure must have given up some upside to get that amazing downside protection. Nope. Better upside. Better downside. 

LOWEST 5-Year Annualized Performance

Dispersion of Returns by Strategy
BY VINTAGE YEAR GROUPINGS; ORDERED BY LONG-TERM SPREAD OF RETURNS

This chart tells you two things, one of which you already know: There are significant dispersion differences among the various private investment sub-categories. Investors can become enamored with a portfolio stuffed with venture, growth and small buyout. Sure, everyone should consider some exposure because the returns can be so much higher than other categories. But so is the risk. We are always amazed, by the way, at how secondary funds, that so many use as J-curve mitigators, are actually risk/return enhancers. 

Now for the second thing. We constantly hear the refrain that, as private markets grow, the dispersion will decrease as the markets become more efficient. What we show in this chart is the difference in that dispersion from the years 1979 to 2009 compared to the last 11 years. If that efficient market theory were true, we should expect the light blue bar to be far higher than the dark blue bar. So, are we operating with facts or fabricated theories? Dispersion of private equity returns has come down by so small an amount that it is hardly worth considering. Only distressed credit and natural resources saw any substantial decrease.  Real estate experienced some spread compression, but the larger spread in earlier years was driven primarily by GFC-era funds. Surprised? There are probably numerous theories that the theorists will propose because that’s what theoreticians do, but for those of us who invest, the data is clear: There is not increasing efficiency in the majority of the private markets.

You knew we’d get to risk, right?

Periodic Table of Returns
pooled irr by vintage year

Where Are We Now?

We are asked constantly whether now is the time to invest in private equity. The answer (for the last almost 25 years) is, yes, now is the time. Let’s look at a few ways to assess performance.