Oxford Professor Questions Private Equity Return Metrics as Asset Class Faces Scrutiny

Oxford Professor Questions Private Equity Return Metrics as Asset Class Faces Scrutiny

Ludovic Phalippou, a professor of financial economics at Oxford University's Saïd Business School, sat down with finance writer Marc Rubinstein this month to dissect how private equity firms measure and report returns—a conversation that arrives as CFOs and institutional investors grapple with unprecedented capital commitments to the asset class.

The interview, released February 3rd as part of Rubinstein's Net Interest Extra podcast series, puts one of private equity's most persistent academic critics in conversation with a former investment banker turned financial journalist. For finance chiefs evaluating PE fund commitments or sitting on boards of portfolio companies, the timing is notable: the discussion comes as the industry manages roughly $8 trillion in assets while facing questions about fee structures, performance measurement, and whether historical returns justify current valuations.

Phalippou has built his academic career studying private equity performance measurement, making him something of an uncomfortable dinner guest for the industry. His research typically focuses on whether PE funds actually outperform public markets after accounting for fees, risk, and timing—questions that matter enormously to corporate pension funds and treasury departments allocating capital. The professor specializes in what he calls the "plumbing" of private equity: how internal rates of return get calculated, how fund managers report performance to limited partners, and whether the standard metrics tell investors what they actually need to know.

The conversation format—a 50-minute audio interview—suggests Rubinstein is giving Phalippou room to walk through technical arguments about return measurement that don't fit neatly into written analysis. (Rubinstein, who spent years at Goldman Sachs and AllianceBernstein before launching his Substack publication, tends to let his guests explain complex financial mechanics without interruption, which either makes for illuminating listening or puts you to sleep depending on your tolerance for discussions of IRR calculations.)

What makes this particular interview relevant for finance executives isn't just Phalippou's skepticism—academics questioning PE returns is hardly new—but the institutional context. Corporate pension funds, insurance company balance sheets, and university endowments have dramatically increased their private equity allocations over the past decade, often based on historical return data that Phalippou's research suggests may overstate actual performance. For a CFO evaluating whether to commit another $50 million to a PE fund, or a treasurer trying to model expected returns for asset-liability matching, the methodological questions Phalippou raises aren't academic—they're practical.

The interview also arrives as private equity firms face pressure on multiple fronts: regulatory scrutiny of fee disclosures, questions about whether the "denominator effect" (falling public market values making PE allocations look oversized) will force selling, and concerns that rising interest rates have fundamentally changed the math that made leveraged buyouts work. When a professor who literally wrote the book on PE performance measurement sits down for nearly an hour to explain his concerns, finance chiefs managing institutional capital might want to listen.

Phalippou's academic perch at Oxford—where he teaches MBA students who often end up working in private equity—gives him an interesting vantage point. He's training the next generation of PE professionals while simultaneously publishing research that questions the industry's core performance claims. It's the kind of tension that makes for either very awkward faculty mixers or very interesting classroom discussions about how financial services actually work versus how they're marketed.

The key question for CFOs: if one of the field's leading academics on PE measurement is still raising concerns about how returns get calculated and reported, what does that mean for the capital allocation decisions finance teams are making today?