Alternative vs. Mutual funds: a tight match at inaugural KPMG Fund Debate

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“If you were given $1 million dollars tomorrow, should you invest it in alternative or mutual funds?”

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This provocative question kicked off the proceedings at KPMG’s Inaugural Fund Debate at the company’s headquarters in Kirchberg. Before an audience of professionals from both sides of the debate, keynote speaker Ludovic Phalippou – associate professor at Oxford University’s Said Business School – challenged conventional thinking and many industry whitepapers in his thought-provoking lecture on why alternatives may not offer the huge returns that many believe.

“If you were given $1 million dollars tomorrow, should you invest it in alternative or mutual funds?”
After first teasing the audience with evidence of alternative funds superior performance from a variety of sources, Ludovic went on to explain how certain statistics touting private equity’s exceptional returns might need to be considered with a cooler, more critical eye. What is presented as returns are often ‘internal rates of returns’ and these can deviate significantly from true returns. The choice of the benchmark can also change the perceived outperformance dramatically. Once the numbers are ‘undressed’, alternative and mutual performance are – according to Ludovic – fairly comparable. His keynote speech ended with a final caveat:
“This asset class is extremely complex. You need a 100 person team to fully grasp the complexities. As a result, it is worthwhile to look into this asset class only if you have over 100 billion dollars of assets under management.”

“I sense a fee debate might be coming on”
Ludovic was joined on stage by a mixed panel covering both alternative and mutual funds - Denise Voss of Franklin Templeton, Marc Gendebien of Genii Capital, Rainer Göbel of GLL Real Estate Partners and Chrystelle Veeckmans and Charles Muller of KPMG Luxembourg – for a lively debate around the issues raised in the keynote speech. Much of the discussion centered on the thorny issue of fees: Private Equity fees average between 7% and 10% per year on invested capital, whereas mutual fund fees hover around the 1.5% mark. The panel were all in agreement, however, that further transparency on fees would be necessary in order to meet investor expectations.

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