Q1 – One limitation of both Sharpe and sortino ratio is that they do not take into account the diversification benefit from low correlations with returns to traditional investment.
Q2 – An IRR over the life of a fund is the most appropriate measure of after tax investment performance
Could anyone please explain
A1: Both Sharpe ratio and sortino ratio are based on std deviation and not beta. Std deviation takes into account total risk which is a combination of systematic and unsystematic risk. Now, if it were taking into consideration only the market risk, it would have meant that SD and sortino ratio are taking into account diversification benefit since then the unsystematic risk would be 0. But since this is not the case, it is a limitation.
A2: Can you share the source of this?
Performance Appraisal for private capital and Real Estate in Alternate Investment