Oxford Professor Questions Private Equity Return Metrics as CFOs Face Mounting Pressure on Asset Allocation

Oxford Professor Questions Private Equity Return Metrics as CFOs Face Mounting Pressure on Asset Allocation

Marc Rubinstein's latest Net Interest Extra podcast features Ludovic Phalippou, a Professor of Financial Economics at Oxford University's Saïd Business School, in a conversation that arrives as corporate finance chiefs grapple with how to evaluate private equity performance amid increasingly complex fee structures and reporting standards.

The February 3rd interview with Phalippou, who specializes in private equity and asset management, comes at a moment when CFOs are under pressure to justify alternative asset allocations to boards and investors. The timing is notable: private equity has become a standard component of corporate treasury and pension fund portfolios, yet measuring actual returns remains contentious among academics and practitioners.

Phalippou has built a reputation for scrutinizing how private equity firms report performance, making him a polarizing figure in an industry where fee opacity and return calculations have faced growing regulatory attention. His academic work at Oxford focuses specifically on the mechanics of private equity returns—the gap between what gets reported to limited partners and what investors actually earn after fees, timing, and risk adjustments.

For finance leaders, the conversation touches a nerve. Unlike public equity returns, which are straightforward to calculate and benchmark, private equity performance involves internal rates of return, multiple calculations, and cash flow timing that can make apples-to-apples comparisons difficult. The question isn't academic: it affects how CFOs allocate capital, how they report to stakeholders, and whether the illiquidity premium they're accepting is actually worth it.

The interview is part of Rubinstein's Net Interest Extra series, which explores finance topics through conversations with industry experts. Rubinstein, a former equity research analyst, has built a following among institutional investors and corporate finance professionals for his detailed examinations of financial industry mechanics.

What makes this particular conversation relevant now is the broader context finance chiefs are navigating. Private equity has grown from a niche asset class to a mainstream allocation, with corporate pension funds, insurance companies, and treasury operations all increasing exposure. Yet the tools for measuring whether that exposure is performing as promised haven't evolved at the same pace. When a CFO presents private equity returns to a board, the numbers often look attractive—but Phalippou's work has consistently asked whether those numbers tell the whole story.

The podcast format allows for a deeper exploration than typical conference panels or academic papers permit. At 50 minutes and 12 seconds, the conversation presumably covers the technical details of return measurement that matter to practitioners: how IRR can be manipulated through capital call timing, how fee structures affect net returns, and how private equity performance stacks up against public market alternatives when properly adjusted.

For CFOs evaluating private equity managers or defending existing allocations, the interview offers a perspective that challenges industry orthodoxy. Whether Phalippou's critiques are entirely fair is debatable—private equity firms argue his methodology doesn't capture the full value they create—but his questions are ones finance leaders should be asking anyway. In an environment where every basis point of return matters and boards are increasingly sophisticated about alternative investments, understanding how private equity returns are actually measured isn't optional anymore.

The conversation is available to paid subscribers of Net Interest, reflecting the specialized nature of the content and its target audience of finance professionals willing to pay for detailed industry analysis.