🎧 Private Equity: Everything You've Learned Is Probably Wrong | Prof. Ludovic Phalippou - Oxford University & Author "Private Equity Laid Bare"

A second episode on Private Equity and probably the most important podcast conversation to date, with the leading academic specialist of the industry.

Hi! It’s George from Investorama - I always learn something interesting in my podcast, but this one really went to the heart of the matter: why do we keep hearing the same erroneous narrative about Private Equity?

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You can watch it on YouTube 👇🏼 (it’s mainly an audio file as there were issues with the video recording) or listen on all the podcast platforms. It’s a masterclass full of fun, personal anecdotes.

We previously explored the Private Equity Myths, here we understand the origin of these myths.

Three quotes

The private equity industry sells itself on past performance. And if that's not there, then they are in trouble. Past performance is a ‘carte blanche’ for them to do whatever they want. If you defeat them on that, if you say this is not as clear as what you make it sound, they get very upset because their livelihood depends on that statistic.

Private Equity firms have big sales and PR teams. They are also one of the most powerful lobbies, but the problem is rooted in academia:

The IRR is a very good illustration of how education by an academic may differ from education by a practitioner.
Practically it's so complicated, so complex as a topic, and there are so few people who used to do research, these courses have been given to teach to practitioners or ex-practitioners. Even when it's not the case, academics typically bring a lot of practitioners and let the practitioners do the show, leave them the floor. They give their version of everything. It would be like that in about any industry. You could imagine if Big Pharma was teaching all medical students if Monsanto were teaching all future farmers it would be not quite like as if it were a neutral person.

The magic of KKR’s ‘returns’ - We recorded the episode a week before they were published and Ludovic’s prediction was spot on: 25%.

Every year when KKR publishes their IRR, it is the same number. It is the same number because no matter what they do in a year, it won't change the fact that they are supposed to sit on so much money from reinvested investments, and distributions. All the private equity firms benefit from these inflated figures. Any old private equity firm publishes IRRs over 30% [year after year].

I’ve learnt how to do the same trick. My 2025 predictions for KKR’s ‘returns’ (based on IRR): 25%🪄🏆

Remind me when we’re there!

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Thanks a lot to Ludovic Phalippou for his time!

Check out his website. Follow him on Linkedin. Get the book here.

PS: I’ve also changed the name of the podcast (again) it’s now called “Past Performers - by InvestOrama”

PS: my business, Orama, has a shiny new website