Private Equity IRR Multiple & Waterfall Estimator
Calculate PE fund IRR, MOIC, LP net returns, management fees, and carried interest waterfall distribution.
Worked Examples
Example 1: PE Fund Investment Return Calculation
Problem:$10M investment, 5-year hold, exit at 3.5× ($35M). 2% annual mgmt fee, 20% carry, 8% hurdle. Calculate LP returns.
Solution:Investment:\n- Amount: $10,000,000\n- Holding period: 5 years\n- Exit: $35,000,000 (3.5× MOIC)\n\nGross Returns:\n- Total return: $35M - $10M = $25M\n- Gross MOIC: 3.5×\n- Gross IRR: (3.5)^(1/5) - 1 = 28.5%/year\n\nManagement Fees:\n- Annual: 2% of $10M = $200,000\n- Total (5 years): $1,000,000\n\nHurdle Calculation:\n- Hurdle rate: 8%/year\n- Hurdle amount: $10M × 1.08^5 = $14.69M\n- Return of capital: $10M\n- Preferred return: $4.69M\n\nProfit Distribution:\n- Total proceeds: $35M\n- Less: Return of capital: $10M\n- Profit available: $25M\n- Less: Management fees: $1M\n- Profit for carry calc: $24M\n\nCarried Interest:\n- Profit above hurdle: $35M - $14.69M = $20.31M\n- GP carry (20%): $20.31M × 0.2 = $4.06M\n\nLP Distribution:\n- Return of capital: $10M\n- Preferred return: $4.69M\n- Sh
Result:LPs: 3.09× / 25.3% IRR (net of fees) | GPs: $5.06M fees+carry | Excellent returns for 5-year hold
Frequently Asked Questions
What is IRR in private equity?
IRR (Internal Rate of Return) is annualized return rate accounting for timing of cash flows. Formula: Investment × (1 + IRR)^Years = Exit value. Example: Invest $10M, exit at $35M in 5 years. $10M × (1 + IRR)^5 = $35M. IRR ≈ 28.5%/year. PE target: >20% IRR. Why IRR over absolute return: Time value of money. 3× in 3 years (IRR 44%) is better than 3× in 10 years (IRR 11.6%).
What is MOIC (Multiple on Invested Capital)?
MOIC = Exit Value / Investment. Simpler than IRR; ignores time. Example: Invest $10M, exit $30M = 3× MOIC. PE targets: 2.5-3× minimum. MOIC is transaction multiple. Use both: IRR measures annualized return (comparable to stock market), MOIC measures absolute gain (easy to understand). 2× in 3 years (IRR 26%) may beat 4× in 10 years (IRR 14.9%) from IRR perspective but MOIC prefers 4×.
What is a good IRR for private equity?
Target IRR varies by strategy. Buyout (LBO): 20-25%. Growth equity: 25-30%. Venture capital: 30%+ (higher risk). Top-quartile funds: >25%. Median: 12-15%. Below 10%: Underperforming (S&P 500 is ~10%/year). Context matters: 15% IRR during recession is good; 15% during boom is mediocre. LPs allocate to PE expecting premium over public markets (illiquidity premium + value creation).