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Is venture capital or private equity really uncorrelated to the general stock market? It is also difficult to evaluate the volatility of an asset if the price
by xorfish 6y ago
Is venture capital or private equity really uncorrelated to the general stock market?
It is also difficult to evaluate the volatility of an asset if the price is evaluated infrequently.
Imagine how good the stock market would look, if you only get the price every 5 years.
- darawk 6y ago> Is venture capital or private equity really uncorrelated to the general stock market? Somewhat, yes. It's not that it's completely uncorrelated, but it is less correlated than other public companies tend to be. > It is also difficult to evaluate the volatility of an asset if the price is evaluated infrequently. Yep, you're absolutely right. This is sometimes called the 'liquidity premium'. People tend to pay less for illiquid assets than liquid assets, all else equal. Which means that investing in illiquid assets should, all else equal, produce better risk-adjusted returns on average over time, especially if you are selling them after they become liquid.
- dannyw 6y agoI find that VC investors tend to have more of a "we invest in bull and bear markets" mentality, especially because all investments are long term investments. I think this creates a smoothing effect. For example, during the COVID flash crash, an investor sold their stake in a VC fund, to another investor at the NAV price.