Understanding IRR in Private Equity Performance Measurement

In the realm of private equity investment, performance measurement is critical for evaluating the success of funds. One popular method is the Internal Rate of Return (IRR), which reflects the annualized effective compounded return rate that can be earned on the invested capital. Meanwhile, the Money-Weighted Rate of Return (MWRR) accounts for the timing and size of cash flows into and out of the fund.

Given the crucial role these metrics play, consider the scenario of a private equity fund that has a reported IRR of 15% over a five-year investment horizon. An investor in this fund wants to assess whether this IRR presents a satisfactory performance metric.