Leading academic exposes ‘misleading’ private equity returns

University of Oxford academic Ludovic Philappou has found that the returns reported by the private equity industry can be misleading.

University of Oxford academic Ludovic Philappou has found that the returns reported by the private equity industry can be misleading and calls for more accurate methodology.

In a new paper entitled “Why is the evidence on private equity performance so confusing”, Philappou of Said Business School reveals that there is a disparity between the private equity returns found by academic studies and the performance reported by the private equity industry.

‘Industry associations show quite consistently that private equity outperforms public equity by a wide margin,’ he says.

Philappou explains that the Yale endowment fund, famous for its high returns of around a 30 per cent annualised rate of return over 40 years, is ‘often cited as an example of how much value can be achieved by a portfolio with an aggressive allocation to private equity’.

‘Academic studies present a different view, showing that taken all together, private equity funds had returns comparable to those of public equity.’

The Oxford academic suggests that a ‘more robust methodology arising from academic research’ would make a comparison between asset classes ‘meaningful’.

Philappou continues, ‘This is highly significant as the industry performance reports, or that of Yale, are the only source of performance information for an asset class worth over $1 trillion (£620 billion).

‘I would encourage the private equity industry to re-evaluate how it computes performance.’

Philappou has been a lecturer in finance at Said Business School since January this year. He is in a ranking of the top 100 business school researchers worldwide by the Social Science Research Network for the number of downloads of his articles.

Todd Cardy

Todd Cardy

Todd was Editor of GrowthBusiness.co.uk between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital. Connect with...

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