Knowledge
Two ways to measure a private equity return — one counts the money, the other counts the time. Why they can disagree, and when each one matters.
Last updated 4 July 2026
In brief: The money multiple (also MOIC or MoM) measures how many times an investment returned its capital — total value divided by capital invested — and ignores how long it took. IRR is the annualised, time-weighted rate of return that discounts every cash flow by its date. Because IRR rewards speed, a fast 1.8x can post a higher IRR than a slow 2.5x, so serious LPs read the two metrics together rather than choosing between them.
The money multiple answers the simplest question an investor can ask: for every euro I put in, how many did I get back? It goes by several names — MOIC (multiple on invested capital), MoM (multiple of money), or gross/net multiple — but the arithmetic is always the same.
An investment of €10m that returns €25m is a 2.5x. The measure is deliberately crude: it is time-blind. Whether those proceeds arrived after three years or after nine, the multiple is identical. That simplicity is a strength — it is intuitive, hard to game, and directly proportional to the absolute profit generated — but it is also a blind spot, because time is one of the most important dimensions of an investment return.
The internal rate of return (IRR) is the annualised discount rate at which the net present value of every cash flow — money invested and money returned, each dated — sums to zero. Put plainly, it is the compound annual growth rate the investment actually delivered, taking full account of when each euro moved.
IRR is time-weighted: capital returned sooner is worth more, because it can be redeployed. This is why IRR captures something the multiple cannot — the velocity of the return. It is also why IRR is more sensitive and, in the wrong hands, more manipulable: early distributions, subscription-line financing that defers LP capital calls, and short holding periods can all flatter an IRR without any change in the underlying business performance. Unlike a multiple, IRR cannot be computed by hand for realistic cash-flow patterns; it is solved iteratively.
The clearest way to see the tension is to compare two investments of the same size. Deal A returns 1.8x in three years; Deal B returns 2.5x, but takes nine. Both start with a €10m outflow at time zero and a single exit distribution.
| Deal A (fast) | Deal B (slow) | |
|---|---|---|
| Capital invested | €10.0m | €10.0m |
| Proceeds at exit | €18.0m | €25.0m |
| Holding period | 3 years | 9 years |
| Money multiple | 1.80x | 2.50x |
| IRR | 21.6% | 10.7% |
Deal B returns 39% more absolute money — a 2.5x against a 1.8x — yet its IRR is roughly half that of Deal A. The reason is compounding: earning 1.8x in three years implies growing the capital at about 21.6% every year, whereas stretching 2.5x over nine years works out at only about 10.7% annually. An LP who could reinvest Deal A's proceeds at a similar rate would end up far ahead by year nine, despite the lower headline multiple.
This is the crux of the disagreement. A GP that flips assets quickly can post spectacular IRRs on modest multiples; a GP that holds compounders for a decade can post modest IRRs on excellent multiples. Neither number is wrong — they answer different questions. This is also why LPs pay close attention to the carried interest and the fund waterfall: an IRR-based hurdle and a multiple-based view of profit can reward very different behaviour.
Both metrics come in two flavours, and confusing them is a common source of error. Gross figures measure the return of the underlying investment before the fund's own costs. Net figures are what LPs actually keep, after management fees, fund expenses, and carried interest have been deducted.
The gap is not trivial. A gross 2.5x on a fund charging a 2% management fee and 20% carry might land at a net multiple closer to 2.0x, and the net IRR can fall by several percentage points relative to the gross figure. When comparing funds or reporting to investors, always confirm whether a quoted IRR or multiple is gross or net — and on the net side, whether it reflects the fund's actual fee and carry terms, which flow through the distribution waterfall.
Sophisticated investors never rely on a single number. The two metrics illuminate different aspects of performance, and each has a failure mode the other corrects.
| Question | Best answered by |
|---|---|
| How much absolute wealth did this create? | Money multiple (MOIC / MoM) |
| How efficiently was capital compounded per year? | IRR |
| Is a high IRR just the result of a very short hold? | Money multiple (a low multiple exposes it) |
| Is a high multiple worth locking capital up for a decade? | IRR (a low IRR questions it) |
In practice, IRR tends to dominate GP marketing because it is the headline the fee and carry structure is often benchmarked against, while multiples anchor an LP's sense of how much money the fund has genuinely made. Both feed into the realised and unrealised measures LPs track over a fund's life — DPI, TVPI and RVPI — which express the same cash flows as multiples of paid-in capital at the portfolio level.
Because a money multiple is only as accurate as the cash flows behind it, CapTab computes money multiples by investor, instrument, and entity directly from the transaction register — every subscription, accrued interest entry, and distribution dated and reconciled — so the numerator and denominator are always derived from the same auditable ledger rather than assembled by hand.
Per investor, per instrument, per entity — derived from dated transactions so every return figure reconciles to one source of truth.