Lessons from 35 Years of US Venture Capital, Buyouts, & Stock Returns: Comment Letter to US DOL on Potential Benefits and Risks from Expanding Private Equity Safe Harbors
Eric T. Johnson submitted a Comment Letter and analysis to the US Department of Labor on June 1, 2026, in response to the Department's request for public comment on a proposed rule concerning the inclusion of private equity and other alternative investments in defined contribution retirement plans, such as 401(k) plans.
The Letter and its Appendix address, among other topics:
That US public stocks, when bought and sold on timing matched to private-equity fund cash flows, returned multiples of 1.5x or higher for almost every vintage year since the 1990s — averaging even higher for the 2000 to 2018 vintage years, at 1.83x for the S&P 500, 1.68x for the S&P SmallCap 600, and 2.65x for the S&P 500 Information Technology indices— establishing a baseline against which private-investment outperformance and risks can be assessed;
How IRR-based "horizon returns" for US venture capital, locked in within the 25% to 35% range from many starting points in the 1990s, overstate the true economic returns realized, have remained largely unchanged for over two decades, will continue to cycle through essentially the same levels far into the future, and are not suited to safe-harbor use;
Why any safe harbor should disclose the returns realistically available to "average" or "unskilled" investors, not only the pooled benchmark figures often cited, including detailed analyses for multiple time periods of how returns and outperformance can fall materially for investors unable to access the top 5% or 10% of funds;
The use of cash-flow-matched multiples and simple premiums (200, 300, and 400 basis points) versus public stocks as intuitive measures of "risk-adjusted" returns that can be easily understood by plan fiduciaries and participants.
White Paper for Institutional Limited Partners Association (ILPA)
This research paper examines private investment returns and policy benchmarks, with a focus on results from the United States of America from 1995 onward. It was prepared in 2017 exclusively for members of the Institutional Limited Partners Association, an organization representing more than $2 trillion of private equity assets under management, and was authorized for broader release in June 2020. Despite having been written almost a decade ago, the paper highlights potential pitfalls in assessing private investment performance results that remain relevant for the trustees, investment professionals, and beneficiaries of institutional asset owners, for investment managers and asset allocators, for academics, for government officials and regulators, and for others interested in a clearer understanding of private investments.
The paper uses a high-quality data set of private investment funds tracked by industry leader Cambridge Associates to assess the long-term performance results for private investments through 2016. In addition to these results, the study discusses a number of issues that Limited Partners should consider when analyzing performance results, especially when using IRR-based “horizon returns” to assess results over long- and short-term time periods. Long-term “horizon returns” can become “locked-in” when distributions are very high in the early years of a calculation, as they were for US venture capital for many time periods beginning in the 1990s. The result can be long-term “returns” starting from specific dates that essentially never change, despite dramatic subsequent events. This reliance upon an IRR calculation undermines the value of such “horizon returns” for comparisons to time-weighted returns or even to public-market-equivalent returns of public stocks.
The paper also recommends that Limited Partners beware of how sensitive the reported long-term “returns” of the industry can be to the results of a small number of funds. An investor who missed out on only the top 5% of US venture capital or US buyout funds would have seen their annual out-performance drop by approximately 230 basis points and 100 basis points, respectively. Both figures represent a very large proportion of a 300-basis-point annualized premium that Limited Partners often seek, suggesting that investors who lack the skills and networks to identify and access their proportional share of top-decile or top-quartile funds may find that they achieve results that differ substantially from the overall “pooled” results for the entire industry.