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Date: 2024-06-17 Page is: DBtxt003.php L0900-F2-ACTORS-private-equity-investors-01a
An Inconvenient Fact: Private Equity Returns & The Billionaire Factory
by Ludovic Phalippou*

by Ludovic Phalippou*
University of Oxford, Said Business School
Private Equity (PE) funds have returned about the same as public equity indices since at least 2006. Large public pension funds have received a net Multiple of Money (MoM) that sits within a narrow 1.51 to 1.54 range. The big four PE firms have also delivered estimated net MoMs within a narrow 1.54 to 1.67 range.
Three large datasets show average net MoMs across all PE funds at 1.55, 1.57 and 1.63. These net MoMs imply an 11% p.a. return, which matches relevant public equity indices; a result confirmed by PME calculations. Yet, the estimated total performance fee (Carry) collected by these PE funds is estimated to be $230 billion, most of which goes to a relatively small number of individuals. If all vintage years are included to 2015, Carry collected is $370 billion, with a performance similar to that of small cap indices, but higher than that of large cap stock indices. The number of PE multibillionaires rose from 3 in 2005 to 22 in 2020. Rebuttals from the big four and the main industry lobby body are provided and discussed.
The 37 page paper
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The spreadsheets with supporting material
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TPB Note: Since the 1970s, the financial sector has become very creative, aided and abetted by academics in the big name business schools. The financial sector does not create any 'real' value add, but merely serves to make funding available so that 'real' business has the capital to create this value add. During this time period, real technology and engineering has made it possible to improve productivity in an amazing way ... and the financial sector has extracted this value on a scale that is quite remarkable.
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