Performance
Internal Rate of Return (IRR)
The annualized rate of return that sets the net present value of a fund's cash flows to zero.
IRR is the dominant performance metric in private markets, but it is sensitive to timing. Early distributions, recycled capital, and subscription line usage can all materially shift reported IRR without changing the underlying value created.
LPs should always pair IRR with a multiple of invested capital (MOIC or TVPI) to understand both the rate and the magnitude of the return. An 80% IRR on a six-month hold creates less wealth than a 22% IRR over ten years.
For diligence, ask for IRR with and without sub line usage, gross versus net of fees, and on a deal-level basis where possible.