medium · Private Equity & LBOs
A PE fund uses a 'Subscription Credit Line' to fund an investment for 12 months before calling capital from LPs. The investment generates a 2.0x MOIC over 4 years (total hold).
How does the use of the sub-line affect the reported Net IRR compared to the Gross IRR?
- Net IRR increases by approximately 100-200 bps
- Net IRR decreases due to interest expense
- MOIC increases modestly while IRR stays roughly flat
- There is essentially no measurable impact on the fund's IRR
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