Spot on! It’s exactly the Denominator Problem paired with a Liquidity Problem. My two cents:
1. Scale: As you noted, big endowments can’t operationally manage the thousands of tiny checks required to index seed properly. The overhead breaks the model.
2. Time and uncertainty: Seed indexing maximizes the multiple (100x potential) but extends the wait (10+ years) and bigger uncertainty. Lots of LPs have annual bills to pay. They are forced into later stages to get cash back faster (DPI), even if the raw returns are lower. Lots of Institutions happily trade the 100x potential of seed for the lower volatility of mature assets.
It’s a structural compromise between the math of upside and the reality of cash flow and risk variance.
Spot on! It’s exactly the Denominator Problem paired with a Liquidity Problem. My two cents:
1. Scale: As you noted, big endowments can’t operationally manage the thousands of tiny checks required to index seed properly. The overhead breaks the model.
2. Time and uncertainty: Seed indexing maximizes the multiple (100x potential) but extends the wait (10+ years) and bigger uncertainty. Lots of LPs have annual bills to pay. They are forced into later stages to get cash back faster (DPI), even if the raw returns are lower. Lots of Institutions happily trade the 100x potential of seed for the lower volatility of mature assets.
It’s a structural compromise between the math of upside and the reality of cash flow and risk variance.