American Investment Council

Get The Facts

The data is clear. Private equity has a long and consistent track record of supporting public pension funds and millions of their beneficiaries. Nevertheless, career critics of the industry, ranging from Senator Elizabeth Warren (D-MA) to economist Eileen Appelbaum, often cite incomplete or inaccurate data about private equity’s returns.

Some recent reporting has included the work of Oxford Said Business School professor Ludovic Phalippou to inaccurately claim that private equity has not been the best performing asset class for public pension funds and other institutional investors. However, Professor Phalippou’s claims and work have been debunked, most notably by noted University of Chicago Professor Steven Kaplan, whom Fortune referred to as “probably the foremost private equity scholar in the galaxy.”

Copied below are some of the key facts Professor Phalippou gets wrong:

• Phalippou’s time period is cherry-picked to create a distorted picture:
  • His method cites private equity underperformance vs. the S&P 500 for a single, arbitrary period beginning in 2006.
  • Fact: Phalippou cherry picks the least attractive time period for private equity of all possible time periods, during a market high prior to the 2008 recession.

• His study compares apples to oranges:
  • Phalippou’s method incorporates a broad range of non-private equity private market funds in his analysis, including real assets, natural resources, infrastructure, and real estate
  • Fact: Real assets substantially underperformed public markets and energy multiples -50% vs. S&P 500

• Inappropriate, unfavorable, and inconsistent approach to benchmarking indices: 
  • Phalippou’s method benchmarks against the S&P 500, which is heavily overweight in mega-cap tech companies: ~20% of the index market cap reflects FAANG stocks.
  • Conflict: Even Phalippou’s own prior research states the S&P 500 is not the correct index for benchmarking.
  • Fact: Typical private equity portfolios do not include mega-cap tech – a broader index like the Russell 2000 would be more appropriate for private equity.

• PhaIippou ignores benefits of diversification:
  • Phalippou notes this consideration is excluded as “I do not know how to measure risk and diversification in PE, nor know any academic studies offering a well-accepted approach.”
  • Fact: As investors face declining opportunities in the public markets, private equity allows investors to diversify their portfolios and reduce risk.

• Contradicts his prior work to depict private equity negatively:
  • His new study contradicts earlier 2012 work, which described S&P 500 as an inappropriate benchmark.
  • His new study also contradicts his 2018 study, which found buyout funds provide diversification benefits.