AI does my IRR paper

This paper by Ludovic Phalippou critiques the widespread use of since-inception Internal Rate of Return (si-IRR) to assess private equity performance. Phalippou argues that si-IRR is misleading, significantly inflating perceived returns and driving excessive capital allocation to private equity. He demonstrates how si-IRR is highly sensitive to early cash flows, susceptible to manipulation, and not a true rate of return, unlike calculations in public markets. The author proposes using horizon IRRs – returns calculated over fixed periods (e.g., 5, 10, 15 years) – as a more accurate and less manipulable alternative, while acknowledging limitations even with this approach. Ultimately, the paper aims to expose the flawed methodology behind widely reported private equity returns and advocate for improved transparency and more robust performance measurement.