Performance Measurement in Private Equity

In the context of Private Equity (PE) performance measurement, investors often look at various metrics to evaluate fund performance. One commonly used performance metric is the Internal Rate of Return (IRR), but this can be influenced by the timing of cash flows in and out of the fund.

Consider the following three statements regarding Private Equity performance measurement:

1. IRR assumes reinvestment of cash flows at the same rate as the IRR itself.
2. The Modified Internal Rate of Return (MIRR) adjusts for the reinvestment rate of cash flows.
3. Net Asset Value (NAV) provides the best basis for comparing different funds in terms of performance.

Which statement correctly reflects an essential characteristic of Private Equity performance metrics?