Double or nothing

I WAS getting an update on one of my family investments in 2010, by an established private equity firm. This was the first visit after having invested for five years, as the marketing salesperson was promoting their next fund. He proudly said that the existing fund had achieved an Internal Rate of Return (IRR) of +3 per cent per annum. Considering the fund's vintage was 2007, at the peak of the equity market, this wasn't too bad a result.

The only problem was that my own calculations showed the return was negative.

After I pointed this out, the slick salesman was momentarily at a loss for words. I briefly wondered if I was the only investor who had pointed this out, while others had taken the stated IRR figure at face value. He collected himself, said he would double check internally, and get back to me.