The Sharpe Ratio Paradox: Why Still Invest In Venture Capital?

Sharpe ratio is a way of quantifying returns based on risk, specifically it is the average return earned in excess of the risk-free rate per unit of volatility or total risk.There are some limitations, for instance slightly different distributions of returns for a portfolio give quite different Sharpe ratios. But overall it’s a widely accepted metric. Over the past 25 years, the average annual Sharpe ratio for the S&P 500 has been 1 and it is often taken as the baseline for judging different asset classes. Anything lower than 1 is considered a bad investment since you could just put…...