Ludovic Phalippou breaks down the internal mechanics of the private equity industry, focusing primarily on the disconnect between advertised returns and actual net performance. He explains complex financial structures like leveraged buyouts, management fees, and carried interest arrangements while questioning whether these funds truly outperform public equity benchmarks. The text provides a technical dissection of Internal Rate of Return (IRR) versus Multiple of Money (MoM) metrics, illustrating how fund managers can manipulate these figures. Phalippou also examines the legal frameworks and debt obligations that shift risk onto acquired companies.
This book serves institutional investors, pension fund managers, and graduate finance students who require a transparent look at asset allocation. Readers gain the ability to scrutinize general partner reports and identify hidden costs within limited partnership agreements. By understanding the empirical data presented, professionals can better negotiate fee structures and perform more accurate due diligence on fund performance. The reader walks away with a skeptical, data-driven framework for evaluating the real-world value of private equity investments within a diversified portfolio.
Insights from Private Equity Laid Bare
“The average private equity fund has not outperformed the S&P 500 since 2006.”
Private equity firms charge huge fees but barely beat simple stock market indexes. You pay for prestige and get average results. It is a giant marketing trick for institutional investors.
“IRR is a figure that can be easily manipulated by timing cash flows.”
Fund managers use internal rate of return to fake their success. It makes a 15 percent gain look like 30 percent. Stop trusting the IRR metric immediately.
Pension funds keep pouring money into these deals despite the mediocre returns. They need to look sophisticated to their boards. It is basically a fashion statement for bureaucrats.
“The GPs are getting rich regardless of whether they create value.”
Most the money goes to the partners through hidden monitoring fees and transaction costs. They get paid even when the companies they buy go bankrupt. The house always wins.
- Published
- 2021
- ISBN
- 9798596396027
- Language
- EN
