Understanding IRR in Private Equity Performance Measurement

In the context of private equity investment, performance measurement is essential for evaluating the success of investments made by private equity firms. One common measure used to assess the performance of private equity investments is the Internal Rate of Return (IRR). This measure accounts for the timing of cash flows, as it measures the annualized effective compounded return rate of an investment over a period of time.

Which of the following statements regarding IRR in private equity performance measurement is true?