The BloombergBusinessweek article "The Tech Bubble Didn't Burst This Year. Just Wait" examines the current state of the venture capital industry. The article provides various data points, and quotes Benchmark's general partner Bill Gurley as saying that the venture capital industry is "in a slow correction." I agree with Mr. Gurley's assessment. While venture capital funds are raising money at an incredible rate, it seems that VCs are being more selective and valuations are slowly rationalizing.
Calpers, the largest US pension fund, is anticipating weaker returns from private equity, according to the Bloomberg article "Calpers Sees Next Headache in Slowing Private-Equity Cash Gusher." After several years of receiving strong distributions, Calpers believes that the outlook for returns may be diminishing, leading to an ever larger gap between beneficiary costs and revenue from contributions and investing, according to the article
Reasons for the reduced outlook for private equity returns include an "unprecedented" $1.47 trillion in capital overhang in the private equity market - known as dry powder - which PE firms will use to invest in companies. As PE firms are expected to invest the capital they raise, this could present a problem as PE firms compete for deals, increasing entry prices.
Another interesting point in the article is that Calpers has had negative cash flow for the five of the past seven years, which is leading to a shortfall forecast at $9.2 billion by fiscal 2032. What's troubling is that this forecast is based on a 7.5% annualized return from Calpers' investments, when a prominent consultant has projected a more conservative 6.0% annual return rate. If the 6% annual return rate is accurate, the shortfall could be much higher.
The Harvard Crimson has an article "A Tale of Two Endowments" comparing the endowment performance between Harvard and Yale. David Swensen, Yale's Chief Investment Officer, has posted some impressive returns over the past decade.
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