“A $1bn investment earning 39 per cent annually over 30 years would be worth $20tn. And $20tn is the GDP of the United States. I think we would have noticed,” said Mr Phalippou.
The SEC was also shown an anonymised version of KKR’s annual report, which said it had generated an annual IRR of 25.6 per cent over the past 45 years.
“A $1bn investment earning 26 per cent annually over 45 years would be worth $32tn. That is 40 per cent of the GDP of planet earth. It is time for the SEC to ban the use of the IRR by private equity managers. It makes absolutely no sense,” said Mr Phalippou.
He also noted that the “two and 20” fee structure used by private equity managers translates into annual costs of between 6 per cent and 7 per cent. The average expense ratio of actively managed equity mutual funds sold in the US was 0.74 per cent in 2019, according to the Investment Company Institute, a trade association. "