Integrating venture capital funds in to a private equity portfolio

Venture capital has a reputation for being a very risky investment type, despite authoritative studies showing that at a fund level this perception significantly overstates the actual risk to investors. Yet risk of loss remains, and it can be helpful for LPs to model potential losses while accounting for historic fund selection skill. In this edition of Front Line, we use data from Pevara to take a ‘Value at Risk’ approach to modelling potential losses across various worst-case scenarios, digging deeply into the poorest performers across the US, Europe and Asia-Pacific, in order to see how losses play out.

The analysis supports the academic view of venture capital as less risky than advertised, while providing interesting projections into the scale of potential losses and the different risk profiles of venture capital as practiced across different geographies.

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