Real Returns

Recent performance in traditional public markets has been challenging for investors seeking real returns. Over the last decade, the Bloomberg Aggregate Index produced absolute annual returns below 2%, resulting in negative returns after accounting for inflation [1, 2]. Similarly, a traditional 50/50 portfolio of the S&P 500 and long-dated U.S. Treasury bonds has lost **22% in real terms** over the past three years . While experts caution that the superior equity returns of the last 10 to 20 years are not repeatable , historical data shows remarkable long-term resilience. An investment made at the 1929 market peak would have still generated a 6% real return by 1959 [8, 15, 16], and the worst 30-year return for the S&P 500 from that same peak was still 7.8% annually . This contrasts with certain real assets, such as Greater London real estate, which has delivered a significant negative real return over the last decade despite nominal price increases .

The search for higher yields has driven capital into private markets, though returns there face increasing scrutiny. While private equity firms averaged a 15% net return over the last 10 years, this was composed equally of multiple expansion and earnings growth, implying no real value-add from operational improvements . Critics argue the asset class uses misleading metrics like IRR and "volatility laundering"—where infrequent valuations create an illusion of stability—to obscure the true risk and return profile . This skepticism is warranted, as returns from large private equity firms are often no better than the median , and venture capital as an asset class shows underwhelming median returns of **~8% IRR**, with outperformance concentrated only in top-decile managers . Furthermore, newer evergreen private equity structures are expected to generate lower net returns of 12-13% due to liquidity management requirements [21, 23].

Investors are also exploring a range of alternative and niche strategies to generate excess returns. Since the Global Financial Crisis, a strategy of buying the lowest quality public and private credit generated **7% more in annual returns** than high-quality bonds , and asset classes like infrastructure and real estate are seen as sources for several hundred basis points of excess returns over public benchmarks . More specialized assets have also performed well, with catastrophe bonds recently generating returns for institutional investors in the 11% to 14% range and specific renewable energy portfolios delivering realized returns of 7.1% in the US and 14% in Brazil [10, 28]. In contrast, gold has historically been a low-returning asset, with a real return of approximately 1.2% per year, positioning it more as a store of value than a source of significant growth [6, 9].