Venture Capital has often been regarded as the ideal tool for Islamic finance, particpating in profits and losses of innnovative companies.
Now a major assessment has been done by Cambridge Associates in terms of performance, comparing it to the wider stock market. Result: No outperformance. Considering the lack of liqudity it seems to be much less attractive to professional investors than thought.
The lack of success also is induced by lack of transparency and fee models taking away the eventual outperformance. This is for the US market of course. Experiences in less advanced markets could be better or even much worse.
It still has other benefits, as diversifying risk, promoting overall growth and eventuall fostering social benefits.
In order to protect the investor, proper disclosures must be integrated to grow this industry in a healty manner. Further the focus on impact investing will ensure that value is created and risk better managed. What impact investing means could be read here:
Last not least, asset allocation will be revisited by foundations in the US due to the poor performance achieved. More traditional portfolio management will be the result.
All the best,
Michael Saleh Gassner