(The big four, as well as the American Investment Council, all submitted rebuttals to Phalippou, which are contained or summarized in the study.) Are we gradually seeing more awareness of these issues in private equity? Are there firms that are trying to do the right thing in private equity? Earlier this year, for example, a report by the Harvard economist Josh Lerner and Bain and Company showed that, in the ten years to the end of June 2019, PE funds underperformed public equities. Now aged between 20 and 39, this is no longer a generation... Money is a means to an end, not an end in itself. A JD, CPA, and CFA charterholder by background, I have published four books on M&A with McGraw-Hill. As a result of this momentum, the Institutional Limited Partners Association, or ILPA, got some traction. You can read Professor Phalippou’s report here: An Inconvenient Fact: Private Equity Returns & The Billionaire Factory. When trustees and CIOs heard the news, they asked their PE division guys for an explanation, and they in turn questioned the fund managers. Who among us hasn’t been told don’t fight the Fed or that nobody gets fired for buying IBM? You may opt-out by. He has recently written a book called Private Equity Laid Bare in which he challenges the assumption that private equity is the no-brainer investment that many institutional and high-net worth investors believe it to be. You can have as many vague and twisted footnotes as you want. The chap doing PE there is the PE expert. LP: Agency conflicts are the main reason. In a 2017 study, Erik Stafford, also from Harvard, showed that the so-called “illiquidity premium” associated with private equity is actually “zero or even negative”. The industry also cites private equity’s diversification benefits, as well as the opportunities in the private markets as the universe of public companies shrinks. Perhaps that’s politics invading academia, but the point leaves an impression — much like a litigator might sneak a salacious question into witness examination, fully expecting the judge to strike it from the record. But for trustees and CIOs, this is way too specialised and difficult for them to understand. equity is a perfect research topic. But, on the other hand, there’s also enormous lobbying and resistance. There isn’t tunnelling on a massive scale, but it is happening, and the amounts involved are not negligible. No one cared. Carlyle has accused Professor Phalippou of “selective engagement with the facts”. In a blog post published in December 2019, Cliff Asness from AQR Capital Management suggested that it’s more appropriate to refer to an illiquidity discount. But you need to check how everything is defined. Does he want to mobilise other investors? The most obvious consequence of making a noise would be that Pension Fund X will stop doing PE and its PE expert will be jobless. Most investors in PE knew about most of these things, or at least were suspecting it was happening. For some 15 years, Phalippou has argued that investors are presented with “misleading” performance information when it comes to private equity. The “Millennials” are growing up. In 2017, Yale reported a 20-year IRR for its venture capital investments of an extraordinary 106%. The most pervasive practice though is the use of internal rates of return, which are easy to manipulate in PE because fund managers control the timing of cash flows.