Growth investing in a (bubble)

Why investors care about bubbles

Leo Tolstoy’s Anna Karenina Principle applies: “All happy families are alike; each unhappy family is unhappy in its own way.”

Each bubble looks different on the way up.  However the end is usually the same: forced selling, contagion, and Main Street pain.

The question I get asked most often by investors in meetings today is; are we in a bubble?  We wrote this piece not because we have the answer but rather because we believe that in potential bubble regimes, pacing and sizing are the most important levers an investor controls. In our conversations over the last few months, we’ve observed that most investors are not thinking about pacing and sizing carefully enough, and it’s precisely why the BFA Vintage Fund has been constructed with that in mind.

A recent essay¹ by Andy Constan, a macro strategist and formerly senior investment manager at Brevan Howard and Bridgewater, put it plainly: investing during a bubble regime is a fundamentally different process — for leveraged investors, active investors, and even passive ones. He’s right. What follows is our view of what that means specifically for private markets and venture allocation.

Investors care about bubbles for many reasons, but the primary one, based on the experience of the internet bubble 1997-2000 and the GFC, is contagion.

The initial upward thrust of a bubble regime can trigger forced liquidations in non-bubble assets as investors fund exposure to the bubble. From 1997 to 2000, the compression of volatility created conditions where LTCM and others were damaged in part by the extreme equity rally, even though they weren’t short equities.

Of course after the bubble pops, the contagion is more direct. Correlations rise. Safe assets get sold to meet margin calls. Leverage providers pull back. End investors redeem from managers who are still afloat.

The real economy is impacted after a bubble pops. During the bubble, investors need to game the post-bubble path. You cannot perfectly position for it, but you can size and pace so all of the pain is not felt by you.

Seven practical principles for investing during a bubble

Implications for the BFA Vintage Fund 2026

The investor test: If you invest a lump sum tomorrow and the market immediately falls 20%, will you hold the position or sell at the bottom? If you pace in and the market rips higher after your first tranche, will you stick to the plan or chase?

Math says you need to own assets, FOMO says get involved and lean in, and fear tells you to stay on the sidelines.  This is always the investor challenge.  

With the growth in importance of private markets and the incredible shift represented by AI, investors know they need to have an allocation to venture and growth.  But how in this market?

Venture is all about alpha, where manager selection, manager investment stage, and manager investment pacing matter enormously. You do not want to build your venture portfolio in one market environment or with one manager, with one exit environment and one valuation regime.

The right approach is to size the allocation first, then pace into it deliberately.

- How much illiquidity can you genuinely tolerate across your portfolio?

- How much portfolio level venture exposure do you want to achieve over the next 3-5 years?

- Depending on your starting point how quickly should that exposure be built?

Where the BFA Vintage Fund fits

BFA Vintage Fund is core exposure to US venture: not a one-off trade, not a thematic punt, and not a bet that anyone can perfectly call the cycle. It is a structured way to build exposure to the innovation economy through time, across managers and across companies.

Venture exposure should be built as a programme: sized deliberately, paced across time, and diversified across vintages.

Investors can make pacing a powerful asset

While timing might matter it is impossible to execute consistently on a portfolio basis. The objective of proper pacing is to reduce the damage from being too early, too late, or emotionally pushed into maximum exposure at the wrong moment.

Bottom line

In a bubble regime emotions get louder. FOMO gets worse. Drawdowns can be more violent. The temptation to do something to get involved goes up.

Lean into pacing and sizing as your core advantage.

BFA Vintage Fund gives investors a way to efficiently pace building core US venture exposure.  

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¹Read Andy Constan's article on Substack at https://dampedspring101.substack.com/p/a-bubble-is-a-challenge-to-investors