By Thomas O. Herrick
Market Strategist
The scorecard for various private fund assets versus public markets demonstrates mixed results over the last three years relative to longer-term historical results. Return data compiled by Carlyle below compares a broad array of private assets versus the S&P 500 Index. While a few of these assets, notably venture capital and buyout funds, have outperformed the S&P over the last decade, none have done so over the last three years. Why, then, should investors allocate to private funds, which have higher cost and no liquidity, versus the virtually cost-free and liquid S&P?
The answer relates to our forward viewpoint on both public and private markets. Recent S&P 500 performance has been heavily driven by “Magnificent Seven” mega-cap tech giants, accounting for 54% of index returns since 2022.1 Additionally, the technology sector within the S&P accounts for almost one-third of the index. We highlighted this concentration risk dynamic in our 2025 Market Outlook. As the earnings growth gap between the Mag 7 and the remaining 493 diminishes, as expectations forecast, our viewpoint is that markets move beyond peak concentration. A good phrase for this dynamic is an upcoming diversification cycle.
Consequently, our viewpoint is one of high odds that the cap-weighted S&P underperforms other equity metrics going forward. Public market beneficiaries, in our perspective, are equal-weight strategies, small-cap strategies, and value-oriented strategies. Additional diversification beneficiaries will likely be found in private assets as return profiles revert to historic norms. Private assets have varied risks, benefits, and costs. Therefore, allocations should be carefully curated, have thorough diligence performed on them, and sized appropriately within portfolios.
Source: Carlyle Analysis; MSCI, Bloomberg, accessed 10.7.24. Valuations as of 6.20.24. There is no guarantee any trends will continue.
1 Carlyle Analysis
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
Cary Street Partners and its affiliates are broker-dealers and registered investment advisers and do not provide tax or legal advice; no one should act upon any tax or legal information contained herein without consulting a tax professional or an attorney.
We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results. CSP2024246