Limitations of IRR in Private Equity Performance Measurement

In evaluating the performance of a private equity fund, investors often rely on various metrics to assess the success of their investment. Among these metrics, the Internal Rate of Return (IRR) and the Multiple on Invested Capital (MOIC) are commonly used.

IRR provides insight into the rate of growth an investment is expected to generate over time, taking into account the timing of cash flows. Conversely, MOIC measures how much value is created compared to the amount invested, regardless of the timing of cash flows.

Considering these definitions and their implications, which of the following statements best highlights a potential limitation of using IRR in performance measurement for private equity investments?