easy · Private Equity pe-core

Why is the Internal Rate of Return (IRR) considered an unreliable performance indicator during the first 3 to 5 years of a private capital fund's life?

1. Public market benchmarks are always quoted gross of fees, unlike net PE IRRs.
2. The GP simply has not yet earned enough carried interest to normalize the return.
3. Early negative cash flows from fees and investment costs create a J-curve effect
4. In fact, multiples like MOIC are far more sensitive to cash-flow timing than IRR is here.

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