Hot Tip - Buy Low, Sell High!

When we were raising our last fund in 2024, private credit was all investors wanted to talk about. Family offices and RIAs told us they could get close to venture-like returns with much more security.
This month U.S. private credit defaults hit a record 6.3%.

The warning signs were there early
At an investor lunch in 2019, the private credit manager who presented after us said lenders were already relaxing terms and covenants just to get allocations. When everybody thinks something is a good idea, it gets over-bought. There are only so many good loans to go around.
The money kept coming anyway. Private credit fundraising hit record levels in the first half of this year. Loan spreads actually narrowed as more lenders chased the same deals, and payment-in-kind loans, where borrowers add unpaid interest to the balance instead of paying cash, climbed to nearly 10% of business development company portfolios (Axios). Now there's so little agreement about the real default rate that estimates run anywhere from 1% to 19% (Bloomberg), and lenders are preparing to take over the companies they lent to.

Venture learned the same lesson in 2021
In 2021 a lot of ordinary SaaS companies got priced like something extraordinary. The frenzy was driven by the supply of capital, not the supply of great companies. Investors who got burned at the top understandably wanted something safer.

What the numbers say
To be fair, venture has struggled in recent years. Cambridge Associates tracks net returns to investors across thousands of U.S. venture funds. As of mid-2025:

Period           U.S. venture     S&P 500     Russell 2000
10 years       13.1%                  13.9%          7.2%
15 years       15.3%                  15.5%          11.2%
20 years       12.2%                  11.0%          8.2%

Over the last decade venture roughly matched the S&P 500, which looks even worse when you factor in illiquidity. Over 20 years it has kept pace with large-cap stocks and beaten small caps. For comparison, the Cliffwater Direct Lending Index, a common private credit benchmark, has averaged 9.5% a year over the same 20 years.

The vintage matters more than the decade
Averages hide the cycle. Returns depend heavily on when a fund starts investing. Using Cambridge Associates' vintage-year data:

• Funds that started at the 1999-2000 peak roughly gave investors their money back (pooled IRRs of -0.9% and 0.7%).
• Funds that started in 2009-2011, when nobody wanted venture, were some of the best of the last 25 years. The 2010 vintage returned 27.8% a year, 2.8x the capital invested.

Fighting the last war
Before 9/11, I trained as an Apache pilot to stop hordes of tanks coming from Russia or North Korea. Then we deployed to fight insurgents in cities, which looked nothing like what we'd trained for.
Investors who were bucking the trend and investing in private credit in 2020 and 2021 instead of venture probably did very well. Those who continued to pile in later may have been fighting the last war: protecting against the last cycle's risk while crowding into the next one.

​The boring fix
Buy low, sell high is the oldest rule in investing, and humans just aren't wired to do it. The fix is boring: set your allocation and keep it, especially for whatever is out of favor. GPT-3 came out in 2020 and ChatGPT in 2022, years when venture was out of favor. By the time venture looks great again, it might be too late to get in.

Sources: Fitch via Private Equity Wire · Axios · Bloomberg · Cambridge Associates 1H 2025 · Cambridge Associates vintage data · Cliffwater
This post reflects the author's views and is for informational purposes only. It is not investment advice or an offer to sell any security.