easy · Private Equity pe-core

How does the 'J-Curve' effect typically influence the IRR of a newly formed private equity fund during its first three years?

1. The IRR remains completely flat at exactly 0% every single year until the fund records its first realization or exit event.
2. The IRR is typically artificially high in the early years due to the still small amount of committed capital that has actually been deployed.
3. The IRR is typically negative due to management fees and organizational expenses being paid before significant value creation or exits occur.
4. The IRR closely tracks and mirrors the relevant public market benchmark index until the portfolio companies are fully ramped and generating cash.

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