Q3 was an interesting one, and it really was a tale of two quarters in one.
For the first two months or so of the quarter, the market seemed to be really finding its footing for the first time post-2021. But by September, some caution had returned. First, recapping Q2 a little. The percentage of indexed companies with positive quarterly returns had been trending up. Trade premium discounts had improved a little after seemingly one-way trend in 2022. And the buy versus sell IOIs were increasing, and IOI spreads were declining.
Q3 initially continued all these trends. And we saw this in Index performance as well.
Having a look at the year-to-date index performance chart, you see that the year began as a long trend downwards, a continuation of 2022. However, near the end of Q2 and into Q3, we start to see signs of a bottoming in the Forge Private Market Index performance.
Then, zooming in on Q3 performance, we even saw positive quarterly index performance, something that was in contrast to major public markets.
NASDAQ 100, for example, represented here by QQQ, or the small cap Russell 2000, which is represented by IWM ETF, the Forge Private Market Index was up 1.1% in Q3, while Triple Q was down 2.7%, and IWM was down even a little more at minus 4.7%. Looking under the hood of index performance, this next chart shows the percentage of index companies that were priced up, down, or flat for the quarter.
One of the benefits of an index, besides merely understanding the historical returns of the market or investment strategy, is to help us understand the market in a broader portfolio context.
While the Forge Private Market Index was not designed to be directly investable, it can still give us some useful insight into how a well-diversified private market investment portfolio might perform relative to other asset class investments.
Looking at the nearly five years of performance of the Forge Private Market Index, what we see is, even after a strong drawdown in 2022 and 2023, is that a private market exposure still generated strong returns relative to other asset classes.
The Forge Private Market Index generated an average annualized return of 19.2% since the start of 2019, ahead of major public markets, such as U.S. large cap, represented here by the SPY ETF, U.S. small cap represented by IWM ETF, or commodities and bonds represented by the GSG, GLD, and AGG ETFs, respectively. The Forge Private Market Index wasn't the strongest performer we looked at, however. The mega-cap-led U.S. tech sector outperformed it by a few percentage points.
But most interestingly, it did not do so in the same way. While there were some years in which both public market tech and the Forge Private Market Index had positive or negative performance in the same years, the scale of performance and ranking of performance varied. Further, it is perhaps most interesting to see how widely the two markets performed in 2023. And for me, especially this raises interesting questions about the direction of future performance from here.