Mr Morris argues that private-equity managers have charged excessive fees and overstated returns by using misleading measures of their internal rate of return.
Broadly what it comes down to (in terms that may seem unenlightening when stated baldly, but I will elucidate) is that EDF feels it needs an internal rate of return on Hinkley of 10%, and the Treasury fears that means it would make excessive profits.
Second, it discourages the excessive trading or churning of portfolios, an activity that incurs high transaction costs and diminishes the client's return.