The Truth About Private Equity Performance

Oliver Gottschalg () and Ludovic Phalippou
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Oliver Gottschalg: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: The article reports that calculating the performance of private equity funds with a modified internal rate of return (M-IRR) results in a more accurate performance yield or true return. The problem with the internal rate of return (IRR) method is that IRR overstates the fund's performance and misrepresents its relative ranking, which misleads investors about the reinvestment of cash proceeds and makes it difficult to compare fund managers. An example is given showing how M-IRR better represents the rate of return for private equity funds.

Keywords: Private equity funds; Performance (search for similar items in EconPapers)
Date: 2007-12
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Citations: View citations in EconPapers (1)

Published in Harvard business review, 2007, Vol. 85, n° 12, pp. 17-20. ⟨10.1225/F0712D⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00458707

DOI: 10.1225/F0712D

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