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 which measure both a fund’s (portfolio’s) performance and a manager’s performance. The metrics proposed are arithmetic means of holding period rates weighted by the fund’s actual (i.e., market) values. The Internal Rate of Return (IRR) is shown to be a particular case of AIRR, that is, a weighted arithmetic mean of holding period rates associated with interim values which have not to do with market values. Relations with the Time Weighted Rate of Return (TWRR) are investigated.