The AIRR Approach for Investment Performance Measurement

This paper introduces a new method of investment performance analysis, based on the recent approach of Average Internal Rate of Return (AIRR). We show that the approach generates rates of return suitable for assessing both a fund´s (portfolio´s) performance and a manager´s performance. The metrics proposed are arithmetic means of holding period rates weighted by market values. The Internal Rate of Return (IRR) is shown to be a particular case of AIRR, associated with an automatically implied invested capital which has not to do with market values. Relations with the Time Weighted Rate of Return (TWRR) are investigated.