Internal Rate of Return (IRR)
Definition
IRR is the annualized rate of return implied by an investment’s cash flows, the single discount rate at which the money in equals the money out. Private equity lives and dies by it: funds are ranked, and carry is earned, on IRR.
In practice
IRR rewards speed as much as size: doubling your money in three years is a far higher IRR than doubling it in six. That is why sponsors love early dividends and quick exits, and why IRR alone can flatter a deal that returned little actual cash. Always read it next to MOIC.