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June 3, 2022

Michael Marks on the Private Markets: Historical Data Tells A Realistic Story

Michael Marks on the Private Markets: Historical Data Tells A Realistic Story

You, like everyone, might be asking yourself: With public market equities for technology stocks now at far lower prices than in recent years, offering very liquid positions in well-priced public shares, why in the world should I be choosing to invest in private tech companies instead? This is certainly a reasonable question.

A reasonable answer is that you should increase positions in public market stocks if you want long term, liquid exposure to these companies. But here’s the thing: You SHOULD ALSO continue to invest in private companies through venture firms and growth capital firms, and you should consider increasing those investments as well. Why? The reason is simple. Private investment returns have exceeded public market returns over both short and long term periods:

Source: Pitchbook as of 9/30/2021

As you can see, these are robust trends. And institutional investors are certainly paying attention by continuing to increase the percentage of their funds allocated to private companies.

Source: National Association of State Retirement Administrators

Of course, private investing has many of the same characteristics as public market investing, in that downturns effect valuations in similar ways. On the one hand, private investment funds will be marking down some valuations. But on the other, entry-level pricing drops, which is great for long-term returns and creates opportunities to invest in truly transformational companies at better pricing than has been available for years.

So sure, increase public market investment. But don’t let the palpable fear coursing through the venture world lead you to miss the opportunity to capitalize on pricing of private investments that we believe will make this year and next the best vintages in more than a decade.

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