While performance and fundraising totals are often the point of emphasis in our analyses, it can also be informative to examine the total amount of investments being made by LPs. Tracking those numbers can reveal insights into how LPs are reacting to market trends and the macro environment.
As with our previous analysis (Mirror Images: Tracking 2 Decades of Private Credit and Real Estate Investing), we today we compare two different investment strategies—Credit and Venture Capital—to see how different segments of the market move differently (or similarly) over time. For concision, we also focus on Global and North American funds.
The most evident outlier in the chart occurs at the very beginning, during the dot com craze of the late 90s - early 2000s. LPs were piling into VC in record quantities, with over 700 recorded investments in our dataset. The immediate crash to below 200 in one quarter shows the reactivity that can happen in an investor base during seismic events.
Despite that early dip, VC maintained higher levels of investment than credit until 2007-2008. It coincides with the next defining economic event of the decade, the Financial Crisis, which also illustrated LP reactivity. While Credit didn’t peak as high as VC, there was still a marked shift in portfolio construction as companies were left to rebound in the wake of the crisis.
Credit maintained its higher levels for longer than VC as they steadily saw more LP commitments throughout the 2010s and into the 2020s. The private debt markets were growing rapidly at the time, and LPs took note as they allocated more of their portfolio to them.
Although our data for more recent quarters is not yet complete, it does show that VC and Credit have been more closely aligned than ever this decade. There is no clear preference in allocation overall between the two.
We expect that to hold true as both strategies have strong catalysts to continue fueling investor appetite: AI opportunities in VC and exit alternatives plus longer holding periods in private markets for Credit.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.