From Institutional Investor, January 23:
How Ludovic Phalippou Became the Bête Noire of Private Equity
“The reaction of people usually is, ‘This guy is going to give us trouble.’”
When 22-year-old Ludovic Phalippou landed in Los Angeles in 1998 to pursue a PhD in economics at the University of Southern California, the new world he encountered left him with what can only be described as culture shock. Descended from several generations of farmers in a tiny village in Southwest France, he barely spoke English. Some members of his family had not finished high school. Phalippou himself had been able to attend the Toulouse School of Economics only because it was nearby — and free. Fortunately, the school had ties to the University of Southern California, and soon after graduation, Phalippou found himself on a plane traveling some 6,000 miles from home.
“All of a sudden, I was not the son of a farmer who people would look down to and not take seriously. I was just a white male, which tends to be a favorable condition,” he recounted in a recent interview in New York City, where he was meeting with academics at Columbia Business School and speaking to legal scholars and regulators at a private forum on the future of private equity regulation. In an insouciant tone, Phalippou acknowledged that he had another advantage: a French accent, which is “totally cool.”
The young economist soared to the top of his class at USC, where professors told him of the many lucrative career opportunities available for someone with his talents. “My first reaction was ‘I can’t. There’s no way I can do these things.’” But, he notes, “no one cares here. It doesn’t matter. The world was open, and that was completely new for me because in France it would’ve been totally closed.”
As a graduate student, Phalippou says, he was tutoring other students and “making tons of money.” If he gave a three-hour tutorial on Saturday morning to 20 people, “Boom, there was $1,000 on my table. It’s like, ‘What’s that?’” he recalls in amazement.
Phalippou was quickly discovering that just about anything is possible in the land of free markets. Unbridled capitalism — coupled with what he would come to believe was incredible American naiveté — would eventually take him all the way to Oxford University’s Said Business School, where he is now a leading academic teaching the complex financial machinations of private equity to MBA students. His lectures, full of wry humor as well as obscure facts, have made Phalippou a pop star among students, who call him Professor Ludo.
“When I tell them all the tricks to be careful about and how people get rich out of nothing by [using those] tricks, I do have a third of the students who say, ‘That’s great. I learned from Ludo how to do it,’” he says.
Not surprisingly, Phalippou has also become the bête noire of private equity, which he has deconstructed in academic research dating back to 2003, when he first learned that “data point after data point . . . I found that virtually everything sold as a fact was not quite so,” he writes on his website, pelaidbare.com. His ten academic articles on the subject have together been downloaded nearly 100,000 times and cited more than 4,000 times. First published in 2017, Phalippou’s textbook, Private Equity Laid Bare, is in its third edition.
The professor’s fame exploded in 2020 with a blockbuster paper titled “An Inconvenient Fact: Private Equity Returns & the Billionaire Factory,” which laid out how the asset class has created massive fortunes for the owners of private equity firms. Phalippou calculated that the $230 billion these owners earned in performance fees on funds raised between 2006 and 2015 alone had created 22 multibillionaires by 2020 — up from three in 2005....
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