Limitation of IRR in Private Equity Performance Measurement

In the context of private equity performance measurement, understanding the various methods of valuation and their implications for investors is crucial. One common metric used to gauge the performance of private equity funds is the Internal Rate of Return (IRR), which reflects the annualized effective compounded return rate. However, it is essential to recognize that IRR can be influenced by the timing of cash flows. Considering the limitations of IRR, some investors also look at multiples such as the Distribution to Paid-In (DPI) and the Total Value to Paid-In (TVPI) ratios to assess their investments.

Which of the following statements best describes a limitation of using IRR as a performance measurement for private equity investments?