Peter Rip is back with 1900 words (he counted ’em, saving me the trouble) to close out his series on what he is calling “venture capital 2.0”. This time he is talking futures, and he describes a world of integrated firms selling all types of assets, from hedge, to private equity, to early-stage venture.
A few quasi-critical comments first:
- This has been happening for some time. That doesn’t mean there isn’t a newfound interest in integrated funds, crossover funds, etc., but it isn’t new either.
- Crossover firms tend to be highly cyclical, with them doing well when the public markets are doing well, and poorly otherwise.
- Integrated funds create a dilemma for LPs: They cannot focus their portfolios and place bets on asset classes. Instead they are forced to do all or nothing bets across multiple categories. While that might make life less risky for fund partners, that does not drive LP investment performance.
- Integrated funds are a species of fund-of-funds strategy. Recent research has shown such funds underperform in a statistical significant way.
Overall, however, I believe Peter makes some very fair points, and there is no denying the venture business will see some of the changes he describes. But change will be multidimensional, with some of it through larger integrated funds, some of it via a shift to evergreen and closed-end funds, but most of it in the usual way: by LPs eventually getting pissed enough at performance they they kill off underperforming funds.