In this blog, we summarize annual returns for a collection of private market benchmarks and frame recent performance against that of public market benchmarks.¹

Private Equity and Venture Capital

Venture Capital faced severe headwinds relative to Private Equity in 2023. Through the first three quarters, Venture Capital funds from the U.S., Europe and Asia/Pacific largely showed negative performance, but U.S. and Europe Developed funds found positive territory in Q4, while Asia/Pacific remained in the red. On the flip side, all major geographic Private Equity strategies were positive for the year, with U.S. funds returning four positive quarters, and Europe Developed and Asia/Pacific funds negative only in Q3.

Outside the U.S., both Emerging and Developed Markets Private Equity and Venture Capital funds were positive for the year, with Developed Markets outperforming Emerging by nearly 600 bps.

Taking a look back at Private Equity’s historical performance relative to Venture Capital and the S&P 500^® (see Exhibit 2), we see consistent outperformance until around 2015, when U.S. Private Equity started to outperform the S&P 500 by a wider margin than U.S. Venture Capital. In addition, it is interesting to note that the combined index—U.S. Private Equity and Venture Capital—tracked closer to U.S. Private Equity, showing that the dollar weight of the U.S. Private Equity index was greater, and Private Equity activity was more influential in the combined index’s return.

Private Credit and Real Estate

The “golden age” of Private Credit continued in 2023, with global and U.S.-focused Private Credit funds showing consistent, positive performance in each quarter and for the year (see Exhibit 3). The major sub-strategies—Senior Debt (i.e., direct lending), Subordinated Capital (i.e., mezzanine) and Credit Opportunities—drove returns.

On the other hand, Real Estate funds experienced trouble to start the year and declined further in Q3 and Q4. Among the main property types (office, retail, residential/multi-family), retail-focused was the only strategy to achieve a positive 2023 return (about 5%), while office-focused was the major detractor.

Looking at global and U.S. Private Credit over time, we see a recent marginal pickup in performance of global Private Credit, showing that a switch from investing strictly in U.S. Private Credit to a more diversified, global approach did not greatly impact returns (see Exhibit 4).

Although the two indices tracked closely, Private Credit funds experienced sharper increases relative to public credit—the iBoxx USD Liquid High Yield Index—especially during periods of market stress (specifically, the COVID-19 pandemic). While the corporate bond market slowly recovered, the private credit market picked up at higher multiples relative to the public market.

Given the higher returns seen in the private credit market relative to the public market, presumably due to the incremental liquidity premium, it will be interesting to see the impact on these trends of further anticipated interest rate cuts in late 2024 and early 2025.

Takeaways

2023 was a dynamic year for private market benchmarks, characterized by varied results across asset classes and sub-strategies. Private Equity performed well, consistent with its recent performance relative to public equities, while Venture Capital faced significant challenges. Private Credit continues to demonstrate steady positive returns, standing in stark contrast to the difficulties faced by Real Estate, especially office-focused funds.

Learn more in our recent analysis, “2023 Private Markets Review: Cambridge Associates Benchmarks versus Public Indices.”

Don’t miss our next blog where we explore the important role Cambridge Associates benchmarks may play moving forward and highlight how the right data can bolster private market benchmarks.

This blog was co-authored by Ricky LaBelle, Nicholas Godec, and Greg Vadala.

¹ Performance data is from Cambridge Associates via S&P Dow Jones Indices LLC.

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