That all makes sense, but you didn't propose an explanation for why people are choosing to put their money into VC rather than an apparently better-performing investment.
I think there are other explanations too. I'm sure there's a lot of prestige that goes with being an LP in a VC fund. It's a diversified investment that isn't going to be as correlated with the market as say GE will be. If the VC fund you invest in under-performs there's really no way out except to wait it out and not invest in the next fund they raise. That sounds like a bug but it might be a feature since money managers are often under pressure to perform and putting money into a VC basically locks it up. That means decisions about what to do with that money don't have to be made regularly which could be a nice little bonus.
> why people are choosing to put their money into VC rather than an apparently better-performing investment.
Basically because the future is unknowable and there are plenty of VCs who do well. I saw some chart where the top x% (I can't remember nor can I find it) of VC get basically all the returns. Because VC is so unevenly distributed there's a small chance that the probably under-performing fund you invest in MIGHT be one of the break-out VCs that'll end up capturing a large portion of industry returns rather than being paid well to lose money. And if your job is to manage money that might be an attractive proposition; prestige, excitement, diversification, a 10 year set-it-and-forget-it investment, and a small chance of making a big return.