I previously emphatically expressed how private equity and venture capital, albeit collated in the same private equity asset class, are diametrically opposite from a risk profile perspective.
That statement created quite a bit of positive stir, including from finance professors of prominent universities and, to my pleasant surprise, the agreement from a very renowned billionaire venture capital and private equity investor. One who’s choices I have not always agreed with.
My proclamation means allocation or investment outfits, like pension funds and other institutional investors, should have very different risk profiles for venture capital and private equity investments and not tuck them in the same bucket.
The proper understanding of the nature of investible assets also leads to the discovery that asset management’s diversification strategies based on distribution have for many years fundamentally confounded risk with distribution. A costly mistake.
No wonder the returns in finance are not commensurate with the opportunity for human expansion. Now boringly relegating financial performance to the regurgitating aberrations of hindsight in the S&P500, the ultimate index of self.
Let alone these investments not improving human adaptability to nature’s entropy, imploding human renewal, and thus evolutionary setting us all back.
Risk should determine distribution, not distribution determining risk.
However, without diminishing the gravitas of my gating premise of foresight vis-a-vis hindsight, as is the subject of this article, humanity remains subject to nature’s relativity. The kind of relativity I explain in detail in Learn To Think.
Meaning, from nature’s perspective human foresight is in actuality nature’s hindsight. And thus, all it takes to make groundbreaking investments is the pursuit of what already exists in nature, yet to be discovered by humanity.
Human foresight is the discovery of new normalizations of truth (in its scientific reference) applied by nature to everything in the universe. As long as we can tell, for as long as 13.72 billion years, and to our pale blue dot for 4.5 billion years. New normalizations humanity can and should use to improve its adaptability to nature’s entropy.
These new normalizations from the infinite unfolding of nature’s truth are the best risk-adjusted investment opportunities. They are low-risk high-yield because the truth of macro easily defeats the ever-increasing fragility of micro. They provide consistent investment returns, only challenged by a hard-earned discovery of an even higher-order normalization of nature’s truth.
New normalizations of truth also fundamentally and consistently improve the strength of human renewal. So, invest in foresight from new discoveries of evolutionary truth if you want to be deserving of being called a responsible investor your kids will also applaud you for.