When considering the drivers of returns within private markets, it is first important to distinguish between two separate categories.

The first types of returns are those which are consistent between public and private markets, which can also be referred to as fundamental return factors.

The second category captures the additional factors which are specific to private markets.

The fundamental drivers of returns, which apply to both public and private markets, can be broken down into two categories, systematic or market. Market-wide macroeconomic factors, and investment specific, the sector or growth stage.

Looking first at fundamental return factors, macroeconomic factors include economic growth, which captures exposure to the business cycle.

Typically, a venture capital fund would be choosing to invest in a company which was experiencing rapid or robust growth in its economic cycle, this would offer potentially better returns than mature or zero growth companies.

Investors may also be drawn to new sub-sectors.

For example, evolving consumer tastes drive new ideas for companies such as convenient delivery of products.

It's also worth considering global supply and demand factors.

For example, global supply chain issues arising from the 2020 pandemic or demand factors such as global population growth impacting both demand for energy and real estate.

The impact from these factors can be felt across many asset classes within both public and private markets.

Global supply and demand can create rapid growth within industries, but also restricted if there are significant shifts in assets or products that are essential for that industry to survive.