Performance and reporting

IRR (internal rate of return)

Also called Net IRR, Since-inception IRR.

Definition

IRR, internal rate of return, is the annualised discount rate at which the present value of all capital contributions to a fund equals the present value of all distributions plus the residual net asset value. It is weighted by the dates cash moves, so the same multiple earns a higher IRR the sooner the money comes back.

Updated October 9, 2026Checked against our editorial standards

Example

An LP contributes $10M on 1 January 2026 and receives $20M on 1 January 2031. The multiple is 2.0x and the IRR is about 14.9% a year, because 1.149 raised to the fifth power is 2.0. If the same $20M had arrived after three years, the multiple is still 2.0x but the IRR is about 26%, because 1.26 cubed is 2.0. Now suppose the fund paid for the investment with a subscription line and did not call the LP's $10M until 1 January 2027. The LP's money is out for four years instead of five, and the reported IRR rises to about 18.9%, before the cost of the borrowing. Nothing about the investment changed.

Confused with

Multiples. TVPI, DPI and MOIC ignore time. A 2.0x over three years and a 2.0x over ten years are the same multiple and very different IRRs.

Time-weighted return. Public-market managers report time-weighted returns, which strip out the effect of cash-flow timing because the manager does not control it. IRR is money-weighted. A fund manager controls when capital is called, which is why IRR is the private-fund measure and why it can be managed.

In practice

IRR is the number most exposed to a subscription line. Delaying calls shortens the period LP capital is out and lifts IRR while the multiple, after interest, falls slightly. LPs increasingly ask for net IRR both with and without the facility, and the fund's cash-flow dates are the first thing an auditor or secondary buyer asks for.

Related terms

TVPI (total value to paid-in capital)TVPI, total value to paid-in capital, is the sum of distributions to limited partners and the current net asset value of the fund, divided by the capital LPs have contributed.
MOIC (multiple on invested capital)MOIC, multiple on invested capital, is the total value of an investment, realised proceeds plus the current value of what is still held, divided by the capital invested in it.
Subscription line (capital call facility)A subscription line is a revolving credit facility, secured on the limited partners' uncalled commitments and the general partner's right to call them, that a fund draws to pay for investments and expenses before calling capital from LPs and repays from the later capital call.
Gross versus net returnsGross versus net returns is the distinction between performance measured on a fund's investments before management fees, partnership expenses and carried interest, and performance measured on the cash limited partners actually paid in and received after those costs.