Consolidated Performance Reporting
The technical challenge of measuring true performance across illiquid and liquid assets.
IRR vs. MOIC vs. TWR
Understanding the difference between metrics is critical for evaluating investments. Private equity managers sell you on Internal Rate of Return (IRR), but you pay for groceries with Multiple on Invested Capital (MOIC). Time-Weighted Return (TWR) is required for liquid portfolios to isolate the manager's performance from cash flows they don't control.
The Illiquidity Premium
When reviewing consolidated reports, families must rigorously question the valuations of illiquid assets. Smoothing out volatility by keeping stale marks on private companies creates a false sense of security.
| Metric | Definition | Best Applied To |
|---|---|---|
| IRR | Time-sensitive annualized return | Private Equity, Direct Deals |
| MOIC | Cash returned / Cash invested | Venture Capital, Private Equity |
| TWR | Removes impact of cash inflows/outflows | Public Equities, Hedge Funds |
Common Mistakes
Using IRR to measure a liquid public equity portfolio, or blending Private Equity IRR with Public Equity TWR to create a meaningless "consolidated portfolio return" number. They are mathematically incompatible.
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