The Little Book of Venture Capital Investing: Empowering Economic Growth and Investment Portfolios

Chapter Six

Investment Options—Listed

For the vast majority of investors, there is a perception that there is no tradable private equity market; however, there is a growing listed market available for buyers and sellers of private equity assets. Driven by strong demand for private equity exposure, a significant amount of capital has been committed to listed investment products for investors looking to increase and diversify their private equity exposure.

—Lou Gerken

Many private equity (PE) fund investors would like to include market-listed PE or VC (PE) investments as part of their diversified portfolio of alternative assets. The major portfolio benefit beyond the obvious liquidity available from listed investments is that listed PE investments will have the added benefit of shortening the J-curve impact of traditional private equity investing. In lay terms, this translates into the need to first plant the seeds of investments (year one to year three, using historical averages), where the investment is not yet producing tangible returns, before you can harvest the investment returns (years four through seven). This seven-year period is referred to as the J-curve period. Moreover, as private equity investors can never with certainty predict that the current investment climate will prevail over their investments J-curve period (in some cases as short as six-months in the pre-2000 tech boom, or in other cases greater than 10 years), this added investment liquidity flexibility is ...