There is nothing wrong with making bags of money from private equity. But questions are being raised about who actually makes the profits.

The Financial Times reports that a new study, based on data from 6,000 private equity deals and about 1,000 buy-out funds, that average private equity returns have underperformed the benchmark S&P 500 share index by 3 per cent, after fees charged to investors. Excluding fees and carried interest, returns from private equity outperformed the S&P 500 by 3 per cent.

Oliver Gottschlag, assistant professor of strategy at the HEC business school in Paris, told the FT: "This does not correspond with the stereotype of the industry making its investors extremely rich. Investors have not had much fun in this asset class, even though they have all been obsessed with gaining access to the best-performing funds.

So who is making the money? The answer is simple, and it ain't the investors. "Private equity is generating value somewhere, but its fee structure means the general partners capture double the out-performance they generate," Gottschlag said.

Gottschlag has come to the obvious conclusion: private equity firms are misleading investors. "Our research shows the way private equity fund performance is most often reported overstates the truth."