Glossary
Returns and fees
What is IRR?
The annualised rate of return, weighted by timing.
Rewards getting money back quickly, which is why fast exits and recapitalisations flatter it. It can look excellent on a deal that returned little in absolute terms.
A worked example
Invest $100m and get $200m back after three years and the IRR is about 26%. Get the same $200m after six years and it drops to about 12%. Same profit, roughly half the IRR, because time is doing the dividing.
Where it catches you in the game
- Fund IRR is a promotion hurdle at every rank.
It comes up most on the private equity desk and the venture capital desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what IRR does to your returns.