Private equity champion mocks Oxford academic over criticism

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Hamilton Lane, the Nasdaq-listed alternative investment manager, has made a thinly-disguised attack on a University of Oxford academic who has gained a reputation as a fierce critic of the private equity industry.

Ludovic Phalippou, professor of finance at Oxford Saïd Business School, created ructions in 2020 with an analysis that found a handful of private equity barons had accumulated vast fortunes after investors paid $230bn in performance fees over a 10-year period for returns that could have been matched by a cheap tracker fund costing just a few basis points.

Phalippou has repeatedly blasted private equity managers for exaggerated performance claims that have helped them attract massive inflows from institutional investors. He has urged US regulators to create a level playing field for performance reporting standards between private equity strategies and mutual funds.

Hamilton Lane, a prominent champion of private equity, presented a mock dialogue between “Professor Pluto Haddock and an up and coming musician Baylor Slift,” in its 2021 private equity report. Hamilton Lane provides advice on private market strategies on assets worth $580bn and runs private market fund of funds with assets of $76bn.

Pluto repeats criticisms made by Phalippou’s controversial 2020 paper about private equity returns and high fees that Baylor Slift contradicts with data provided by Hamilton Lane.

Taylor Swift’s music catalogue was sold last year to private equity group Shamrock Capital for more than $300m in a deal that infuriated the singer.

Hamilton Lane denied the spoof was aimed at Phalippou.

“Professor Pluto Haddock represents a generic version of the various academic perspectives against the private markets industry. We would encourage everyone to take this in the spirit in which it was intended, a fictional lively discussion around industry data and findings,” it said.

The fictitious professor says in the report that private equity funds are a Ponzi scheme designed to defraud investors, a criticism not ever suggested by Phalippou. 

The spat come amid a growing debate over the performance of the private equity industry, which raised $989bn in new capital last year, down from 2019’s record $1.09tn, according to Bain, the consultancy.

Phalippou has now challenged Hamilton Lane, which maintains an extensive database covering more than 4,000 private equity funds, to a public debate.

“This is not the first time I have found myself under fire for my analysis of private equity. I am happy to discuss facts with anyone, and as adults. All my results can be replicated and verified,” he said.

The academic’s work, which is available on a public website, shows that claims about private equity performance are sensitive to the metrics, benchmarks and time periods that are chosen to measure returns. Multiple techniques used by private equity managers to paint their funds in a more flattering light have been highlighted in his peer-reviewed studies.

“All private equity managers can claim their funds are top quartile performers because there is insufficient rigour around the presentation of their data. It is outrageous that people can produce misleading marketing materials and get away with it. The conflicts of interest are obvious,” Phalippou told the Financial Times.

Oxford Saïd Business School said: “Professor Phalippou’s rigorous analysis confronts existing industry practices, and he conducts his work without fear or favour. At Oxford Saïd, we do not shy away from bold research.”

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