Got Online Access to My US Bank Account

I couldn't get online access to my account at Keybank because they required a US phone number as a security measure. This meant I also couldn't transfer money between Keybank and Interactive Brokers. So, I now bought a US phone number through Skype! I now have access to my account (my old password and username from First Niagara still work, and I managed to initiate a transfer of money to Interactive Brokers. Have to wait and see if it really works, though.

Private Equity and Venture Capital Indices

I commented that I didn't have a good proxy for private equity and venture capital. So, I went and found one and came up with these indices from DSC Quantitative Group. What they do is regress a quarterly indices of private equity buyout and venture capital funds from Thomson Reuters on various sector indices of listed stocks. They update these weights each time Thomson Reuters produce a new number. Because they are using listed stock indices as proxies they can then produce a daily index for private equity. The fit of the proxy to the underlying index is not too bad. This is for venture capital:

 The biggest deviation is during the financial crisis - unlisted private equity fell by more than the proxy index had predicted. When we compare the proxy to the NASDAQ total return index, it looks superficially like a leveraged version of the index:

When I regress it on monthly NASDAQ total return index data for 2008 to 2018, I get a beta of 1.15 and annual alpha of 6%. This suggests that venture capitalists add value by rotating the sectors that they invest in over time and it's not just about leverage:

Alpha is given by the intercept of 0.4% per month. I didn't do the proper CAPM regression where you are supposed to deduct risk free returns from the two returns series first. Given the volatility here and low risk free rates since 2008, I doubt it would make much difference.

Interestingly, the Cambridge VC index estimates much lower returns, close to the returns of the NASDAQ index itself.

You could do all this analysis for the buyout private equity index too. You'd want to regress that on the S&P 500 total return index instead.

Target Portfoilo Performance

In October the target portfolio lost 2.83% in Australian Dollar terms. In USD terms the model portfolio lost 3.43%. This model portfolio doesn't include a proxy for private equity, as I don't know a good one. The ASX lost 6.04%. It was hard not to lose money last month. In the last 10 years the model portfolio returned 8.63% p.a. vs. 11.54% including franking credits for the ASX. In the longer term though the target portfolio ("composite") has about matched the returns on Australian shares with lower volatility:

So it's not that necessary to leverage the portfolio to get good returns. The chart shows returns in Australian Dollar terms though bond and real estate are US dollar returns to two TIAA funds invested in those sectors.