Capital is finite; classifying returns under a power law as a universal framework for venture capital performance is too broad.
This classification is conditional and does not account for periods of high market volatility or liquidity restrictions.
A public pension fund in Denmark must adhere to strict prudential limits and asset-liability matching requirements, making the direct application of a power law distribution problematic.
We need to focus on levers that can be actively managed under these constraints, such as investment decision quality, rather than assuming a universal statistical hierarchy.
For example, relying solely on a power law could cause us to ignore a vital decision to allocate our limited resources to less risky assets during a liquidity crisis.