PE Investment Returns: MOIC and IRR
Private equity performance is measured by two primary metrics: MOIC and IRR. MOIC (Multiple on Invested Capital) shows how many times the fund returned the invested capital. IRR (Internal Rate of Return) shows the annualized compound return. The same 3x MOIC achieved in 5 years (IRR ~25%) is a far better outcome than in 9 years (IRR ~13%).
Formula: IRR = MOIC^(1/Years) − 1, Total Proceeds = Principal × MOIC. Top-quartile PE funds target 3–5x MOIC with net IRRs of 20–30%+ over 5–7 year holding periods. The "2 and 20" fee structure (2% management fee + 20% carry) reduces gross returns to net LP returns.
Frequently Asked Questions
Carried interest (carry) is the share of profits that PE fund managers earn, typically 20% of returns above a hurdle rate (usually 8%). If the fund achieves a 3x gross MOIC with 20% carry, net MOIC to investors is approximately 2.6x.
The J-curve describes the pattern where PE funds show negative returns early (due to fees and uncalled capital) that gradually recover as portfolio companies mature and are exited. Most funds begin generating positive returns in years 4–6.