Venture Capital Beats Buyout Firms

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Venture Capital performed far better than buyout firms in the third quarter of 2008, according to a study just released by Cambridge Associates LLC. Both were money losing, of course. It was a tough year. But dollars invested in venture capital shrank far less than those in buyout firms.

Here’s the tale of the tape for VC vs. buyouts in the third quarter

  • Venture Capital: -2%
  • Buyout firms: -8%.

This is a dramatic shift in capital returns. As the Wall Street Journal’s Private Equity Beat notes, this is only the second time since 2005 that buyout returns trailed venture capital.

Buyout returns seem to be heavily correlated with the broader market. The S&P 500 declined by 8.9%, which means that after fees buyout firm investors would have done better to just put their money in an S&P index fund in the third quarter.  And it’s a major red flag for the fourth quarter.

“If that remains the case, buyout returns are in for some real trouble in the fourth quarter, when these public market indices declined by 22.5%,” Laura Kreutzer notes at PE Beat.

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