Past Performance and Future of Investment Funds
Over the past 20 years, international Venture Capital (VC) funds have delivered remarkably high returns. Well-performing funds achieved an average annual return of over 20% above the benchmark. According to the Cambridge Associates Venture Capital Index, VC funds outperformed public equities by an annual average of 13%.
Over the past 20 years, international Venture Capital (VC) funds have delivered remarkably high returns. Well-performing funds achieved an average annual return of over 20% above the benchmark. According to the Cambridge Associates Venture Capital Index, VC funds outperformed public equities by an annual average of 13%. This performance is largely attributed to the quality, experience, and dedication of the managing team, as well as the stage of the companies invested in and prevailing market conditions. In the last decade, funds focused on verticals such as Software-as-a-Service (SaaS), Artificial Intelligence (AI), fintech, and gaming have demonstrated stronger performance.
In the U.S., over the past 20 years, public equities have provided an average annual return of 10%. Funds like Vanguard 500 Index, Fidelity Contrafund, T. Rowe Bluechip Growth, and Vanguard Healthcare achieved annual average returns of 17-18%, outperforming the market average. The desire of successful companies to remain private and their ability to attract direct investment has increased the appeal of venture capital funds. However, the illiquidity of VC funds is seen as a disadvantage, while equity funds are more attractive to investors due to their liquidity.
Looking ahead, we anticipate that semi-liquid hybrid funds will become more common. These funds will combine direct investment opportunities in both early and late-stage technology companies with positions in publicly traded equities, thus maintaining liquidity and making them more attractive to investors. At Boğaziçi Ventures, we are adopting this strategy in our new VC funds as well. We have begun offering funds that maintain liquid equity positions, operate cash through AI-managed Quant funds, and distribute regular dividends to investors.
The structure and strategy of funds will naturally evolve according to market conditions and investor expectations. Here are some key trends:
1. Environmental, Social, and Governance (ESG) Models
Investors are increasingly prioritizing funds that consider environmental, social, and governance criteria. ESG-focused funds will stand out for investors.
2. Impact Investments
Funds aligned with the United Nations’ 17 Sustainable Development Goals will become a priority for both institutional and individual investors. Investments in renewable energy, gender equality, education, sustainable agriculture, and healthcare will gain attention. However, authenticity is crucial — only funds that genuinely work to create, measure, and track impact will succeed.
3. Effective Use of Technology
Whether investing in private or public companies, effective use of technology will be a key differentiator. Fund managers who identify companies leveraging technology correctly and gaining an advantage from it will emerge as the star managers of the era.
4. Qualified and Experienced Teams
Managing such VC or equity funds requires skilled and experienced teams. As smaller funds face lower chances of survival and delivering consistent returns, consolidation in the market will be inevitable.
5. Thematic and Sector-Focused Funds
As competition intensifies, we will see more boutique funds focused on specific themes and verticals. Only thematic funds will be able to deliver higher returns.
Conclusion
With the right size and management team, venture capital funds will continue to capture market opportunities and deliver strong returns to investors. On the equity side, we expect to see more thematic, specialized funds emerge. However, the management teams, strategies, and structures of these funds will be critical factors that investors must carefully evaluate.
At Boğaziçi Ventures, we remain committed to managing our funds with innovative and sustainable strategies that align with investor expectations. For more information about our funds and investment strategies, please feel free to contact us.