hard · Private Equity pe-core

Which statement most accurately captures the limitation of comparing these funds on IRR versus MOIC, given the same MOIC?

1. Fund A has the higher IRR because a 2.0x in 3 years annualizes to roughly $26% versus roughly $10% for 7 years, but IRR alone can flatter a manager who returned capital quickly into a low-reinvestment-rate environment, so MOIC-plus-IRR with a PME benchmark is needed to judge skill.
2. Fund A and Fund B have identical IRRs because MOIC is equal across both vehicles; the holding period does not affect the annualized IRR calculation whenever the multiple of invested capital is held constant across two funds of differing vintage, strategy, or sector focus.
3. Fund B has the higher IRR because a longer compounding period applied to the same terminal multiple mechanically produces a larger annualized return figure, which is why LPs should treat the slower seven-year exit as the objectively superior investment outcome for capital allocation.
4. Fund A has the higher MOIC-adjusted IRR, and since the IRR calculation already embeds the reinvestment assumption at the fund's own cost of capital, no PME or public-market-equivalent benchmark comparison adds any incremental information beyond what these two headline metrics already show.

Sign up free to see the explanation and track your rank →