"I don't think there is any perfect benchmark that can be used as an industry standard," said Scott Voss, Boston-based managing director and head of the global fund investment group at alternative investment fund-of-funds manager HarbourVest Partners LLC. "One of the largest buyout fund managers in the world told us that the only real benchmark is how you perform against the public markets."
Even so, 2021 has been "one of the most unusual and amazing years" for private equity performance since he has been at HarbourVest, Mr. Voss said.
Venture capital is up 90% for the one-year ended March 31, he said. Within the asset class, Mr. Voss said, referring to industry and HarbourVest data, that private equity portfolios that were more heavily invested in venture capital and growth had the best performance, earning between 800 and 1,000 basis points more than portfolios overweight buyouts.
Indeed, Liza Crisafi, CIO of the $10.8 billion San Diego City Employees' Retirement System, said at the board's Sept. 10 meeting that while private equity along with public equity were the pension plan's two best-performing asset classes, both earning a net 46.7% for fiscal 2021 ended June 30, private equity underperformed its 58.3% benchmark. The reason, she said, was SDCERS' exposure to buyouts, distressed and special situation investments in its private equity portfolio. SDCERS has a 10% target allocation to private equity.
HarbourVest's Mr. Voss explained that venture capital and growth equity have benefited from the rapid growth of the technology and health-care sectors.
But this rapid growth makes it difficult to judge what percentage of a manager's performance is from investing in the right sectors and what percentage is from asset selection, Mr. Voss said.
"Were they (the private equity managers) alpha creaters or beneficiaries of being in a sector," he said. "It's a king tide moment ... a high tide that happens infrequently."
And this king tide moment is probably not sustainable, Mr. Voss said. In this environment when all private equity managers have "great returns," investors should put less weight on returns and focus on other criteria such as what differentiates a manager from the rest of the pack, he said.