Buyout firms are magically - and legally - pumping up returns

Washington

THE steroid era has arrived in private equity. Much like a raft of baseball sluggers in recent decades, buyout shops have seized on a performance enhancer that artificially jacks up results, according to many industry executives.

The practice is not illegal, and is largely cosmetic, but it allows private equity firms to goose what is known as their internal rate of return, or IRR. That is the most important annual performance yardstick that they trumpet to woo prospective investors.