Alistair Ross Goobey, the chief executive of Hermes Pensions Management has warned the private equity industry that it needs to cultivate a little more “humility” in its claims of outperformance, arguing that managers have confused a prolonged bull market with genius.
Speaking at the Superinvestor 2001 conference in Paris last month, Ross Goobey warned that it was becoming increasingly difficult for institutional investors to pick out the wheat from the chaff in the venture world – noting that transparency was at best selective in how it was produced.
He commented: “The most difficult thing for a selector of private equity managers to do is to try to determine those managers who have actually added value beyond these elements.
Ross Goobey added that one consequence of the recent market collapse has been a revelation of the “truth” about the value added by private equity managers. “Many private equity managers do not really add very much. If that is true, how can they justify their high fees? ”
He pointed to a survey of private equity returns, which suggested that venture returns over the past 10 years to the end of 2000 had averaged 20.4%, beating equities, which returned between 14.2% for non-British and 15.3% for quoted UK stocks.
Analysing the figures, however, he noted that of the 91 funds surveyed, the median return was 12.9% - lower than for equities, even on an IRR versus time-weighted basis.

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