It's a problem from an LP's POV. There is no reason to invest in a VC fund that returns 2x when you can invest in a Vanguard index fund that returns 2x. You're supposed to get compensated with higher returns for the risk you take investing in VC; if you don't, the managers of that fund are failing at their jobs.
> There is no reason to invest in a VC fund that returns 2x when you can invest in a Vanguard index fund that returns 2x.
That's not how it works. LPs create a portfolio mix across asset classes and each LP has generally different mixes based on their risk profile. If you're an LP and can't get into a Sequioa/Benchmark/etc fund but still want to diversify asset classes into VC then a "2x fund" might still be attractive to be able to diversify into. There's so much to unwind here, but long story - it's not that simple at all. I agree with the OP's assertion about Matt Levine's view.
I agree in theory but not in reality. But it's the same situation where the the incentives of an LP and a VC are different (not really that different compared to a PE or Hedge Fund). Just like the incentives of a founder and a VC are aligned, until they aren't anymore. There's a reason LPs with squillions to invest carve off a tiny smidge to VCs, and it's not just returns - it's also downside protection. What's true for you and me for our personal finance is not necessarily true for the Harvard endowment.