IRR (Internal Rate of Return)
IRR is a time-weighted performance metric that estimates the annualized return of cash flows into and out of an investment.
Definition
IRR measures performance by incorporating the timing of contributions and distributions. It can be sensitive to early cash flows and interim valuations, especially in private markets. Allocator Context Allocators use IRR alongside multiple metrics to assess manager performance across funds and vintage years, often comparing against benchmarks and peer sets. Decision Authority IRR informs manager selection, re-ups, and performance oversight; extreme IRR claims often trigger deeper diligence. Why It Matters for Fundraising Managers should present IRR with context: cash flow profile, valuation methodology, and complementary metrics (DPI/TVPI/MOIC). Key Takeaways Timing-sensitive performance metric Needs context to interpret Used with multiples and DPI Common diligence focal point