Two of the most-quoted numbers in private fund pitches measure completely different things — and at least one of them is lying to you in any given fund. Understanding which one to trust, when, is most of the work of reading fund returns honestly.
Definitions, in 30 seconds
- MOIC (Multiple on Invested Capital)
- Total dollars distributed back to LPs divided by total dollars contributed. Pure ratio, time-blind. A fund that returns $2.5M on a $1M commitment has a 2.5× MOIC whether the exit happens in year 2 or year 12. Sometimes called TVPI when it includes unrealized NAV.
- IRR (Internal Rate of Return)
- The annualized discount rate that makes the NPV of all cash flows equal to zero. Time-aware, sensitive to when distributions land. The same MOIC can produce an enormous range of IRRs depending on the cash flow timing.
How they diverge
Imagine a $1M commitment that returns $2M. Both scenarios below produce a 2.0× MOIC. The IRRs tell very different stories:
- Slow. $2M returned in year 7 → 10.4% IRR. Long hold, modest IRR.
- Fast. $2M returned in year 2 → 41.4% IRR. Same money, four times the apparent return rate.
The trick is that those two outcomes aren't equivalent for an LP — getting cash back faster lets the LP redeploy it elsewhere. But it's easy to abuse the asymmetry: a GP can engineer a recapitalization that returns capital early, claim a big IRR, and leave the LP with very little remaining upside.
| Year 0 | -$1M |
| Year 5 | $2M |
| Year 0 | -$1M |
| Year 5 | $2M |
Both scenarios distribute the same $2,000,000 in total — the MOIC is identical at 2.00×. But pulling 0% forward to year 1 lifts the IRR from 14.9% to 14.9%. IRR rewards speed; MOIC doesn't.
When IRR lies
- Subscription credit lines.A fund that drawdown-defers LP capital using a sub line and returns proceeds before the LP's capital is even called inflates IRR meaningfully — sometimes by 200+ basis points — without changing what the LP actually earned.
- Recap distributions.Returning capital from a refi rather than a sale doesn't produce real exit dollars, but it ratchets IRR by shortening the duration. The LP's remaining upside is in deferred unrealized value.
- Cherry-picked vintages. A GP showing a "30% IRR across the platform" might be averaging across a single home-run fund and several lifetime-IRR-of-zero failures. Aggregate IRR weights aggressively toward the fast outliers.
When MOIC lies
- Holding for ego. A fund that holds an asset to a higher multiple at the cost of an extra five years can produce a better MOIC and a worse outcome for the LP, who could have redeployed earlier capital into something with a higher annual return.
- Unrealized values. TVPI includes unrealized NAV, which is a sponsor-marked number. A 2.5× TVPI with a 0.4× DPI is telling you very little about realized outcomes.
- Losses across vintages.Showing a “lifetime 1.8×” across a manager's career hides that one fund returned 3× and another lost 60%. MOIC is not risk-adjusted; nothing about it tells you how often the strategy failed.
How to read both at once
The honest way to evaluate a private fund return is to demand both numbers plus a third: DPI, the realized portion of TVPI. A fund showing strong IRR, strong MOIC, and strong DPI has actually done what it claims. A fund showing strong IRR, strong MOIC, and weak DPI is mostly marking its own homework.
For a deeper look at how DPI, TVPI, and RVPI relate, read DPI, TVPI, RVPI: The Three Numbers Allocators Track. And for why early-life IRR is structurally misleading even when nothing is being gamed, read The J-Curve and Why Year 2 Is Brutal.