IRR vs MOIC: Two Ways to Raise a Reported Return Without Making Anyone More Money
Take the worked equity position from the previous post — $67.9m in, distributions over twenty years, a 15.07% IRR and a 3.66× multiple. Now change only timing and financing assumptions.
Sell in year seven, at a price giving the buyer the same 15.07% return on the remaining cash flows. The seller's IRR is still 15.07%. Its multiple falls to 2.04×.
Fund the investment from an assumed subscription facility and defer the investor capital call by twenty-four months. Under the article's simplified fund-level cash-flow methodology, IRR rises to 19.61% and the multiple falls to 3.27× after facility cost. Actual fund reporting depends on the methodology used to map subscription-facility draws, repayments, fees and investor cash flows.
In the first case the return is identical and the money is not. In the second the return is 454 basis points higher and the money is less.
Neither measure is wrong, and neither is sufficient. This post covers what each captures, the two mechanisms above in detail, why infrastructure is particularly exposed to the divergence, and what to look at instead.
ℹ️ Note: All figures are labelled assumptions carried forward from the Project Finance Mechanics worked capital structure. Fund-level conventions vary; the arithmetic does not.
What Does Each Measure?
| Measure | Definition | Captures | Ignores |
|---|---|---|---|
| IRR | Money-weighted rate that sets NPV of the cash-flow stream to zero | Timing and magnitude of cash flows | Absolute scale / dollars created |
| MOIC | Total investment value / invested capital; for a fully realized position this reduces to realized proceeds / invested capital | Magnitude relative to capital | Timing |
| DPI | Distributions ÷ paid-in capital | Cash actually returned | Unrealised value |
| RVPI | Residual value ÷ paid-in capital | Unrealised value | Whether it is realisable |
| TVPI | DPI + RVPI | Total value, realised and not | The difference between them |
The pairing that matters is IRR and MOIC, because each is blind to precisely what the other measures. IRR is highly sensitive to timing and does not report the absolute dollars of value created. A multiple reports value relative to invested capital but has no time dimension.
The pairing that matters for an investor actually receiving cash is DPI against TVPI, because the gap between them is value the manager has marked and not yet returned.
The Exit Case: Same IRR, Half the Money
Hold to end of life
Contributions $67,883,125
Distributions $248,626,824
IRR 15.07%
MOIC 3.66×
Exit at end of year 7, priced at a 15.07% buyer return
Sale proceeds $65,101,740
IRR 15.07%
MOIC 2.04×
The seller achieves exactly the same annualised return and receives $1.62 less per dollar invested. Everything about the asset is unchanged; only the holding period differs.
For a fund with a defined life this is not necessarily a failure — early realization can return capital sooner and create capacity for new investments. But the fund-level outcome depends on what happens after the distribution; IRR itself does not specify the redeployment rate.
The question is therefore whether the reinvestment actually happens, at what rate, and after what fees. For an investor comparing realized outcomes, the holding period, MOIC/TVPI and DPI provide information the IRR alone cannot.
The worked exit case also shows why compensation and evaluation metrics can influence hold decisions. A manager should therefore be assessed on more than one performance measure rather than assuming any one metric is neutral to timing.
Infrastructure can create a pronounced duration mismatch because asset lives can exceed a closed-end fund's planned hold period. Where that mismatch exists, an exit can be driven partly by fund structure rather than by the asset's operating life. Continuation vehicles and longer-duration vehicles are two possible responses, but the actual hold decision remains fund- and asset-specific.
The Subscription Line Case: Higher IRR, Less Money
A subscription credit facility — a capital-call line — lets a fund borrow against investor commitments and call investor capital later. The facility's pricing and borrowing-base mechanics are fund-specific; the modelling point here is the timing shift between the investment cash outflow and the investor capital call.
The effect on reported returns is mechanical:
| IRR | MOIC | |
|---|---|---|
| No facility | 15.07% | 3.66× |
| 12-month deferral | 16.76% | 3.46× |
| 24-month deferral | 19.61% | 3.27× |
A twenty-four month deferral adds 454 basis points of IRR and removes 0.39× of multiple. The IRR rises because investors' capital is outstanding for two years less. The multiple falls because the facility's interest cost is borne by the fund.
There is nothing inherently improper about using a subscription facility. It can smooth capital calls, provide execution certainty and reduce the administrative burden of frequent drawdowns. The relevant disclosure question is how the facility affects the investor-level cash-flow timing and reported performance.
The same timing effect can raise reported investor-level IRR even if the underlying asset cash flows are unchanged, while facility interest and fees reduce investor proceeds. Whether that changes incentive compensation depends on the governing fund documents and hurdle methodology.
ILPA's current Performance Template explicitly captures fund-level performance with and without the impact of fund-level subscription facilities, alongside the underlying cash flows. That is the clean disclosure standard to emulate.
Gross or Net? The Third Lever
The subscription facility and the exit timing are structural. Fees are arithmetic, and they move both measures rather than trading one against the other.
On the same position, with a 1.5% annual management fee on committed capital and a 15% carried interest:
| IRR | MOIC | |
|---|---|---|
| Gross | 15.07% | 3.66× |
| Net of management fee | 13.49% | 3.36× |
| Net of fee and carry | 13.02% | 3.01× |
Over twenty years the management fee totals $20.4m and the carry $24.1m — together roughly $44.4m against $67.9m of contributed capital, and 205 basis points of annualised return.
Three points follow.
The fee drag is duration-dependent, which is an infrastructure-specific problem. An annual fee charged for twenty years costs far more in total than the same fee charged for seven, and it compounds against the low-multiple profile the asset class produces. A 1.5% fee that looks modest against a private equity fund's returns is a much larger share of an infrastructure fund's.
Carry on a long-hold asset is charged on a gain accumulated slowly. Whether a preferred return is compounded and whether carry is taken deal-by-deal or whole-of-fund both matter substantially over twenty years, and the difference between them is larger than most fee negotiations.
Gross and net are different metrics and must be labelled. Public infrastructure-fund disclosures filed with the SEC explicitly distinguish gross IRR from investor-level returns and note that gross fund-level IRR can differ because of fund expenses, carried interest and investor cash-flow timing.
The instruction is the same as everywhere else in this post: ask which, and ask for both.
Why Infrastructure Is Particularly Exposed
Three structural features make the divergence larger here than in most asset classes.
Long holds. For any long-duration strategy, the same annualized return can coexist with very different multiples depending on the holding period. State duration alongside both.
Distribution pattern. Assets that distribute cash throughout the hold produce a different IRR/MOIC profile from assets whose value is realized primarily at exit. That is a cash-flow-shape difference, not an inherent ranking of strategies.
Return scale. A lower-risk contracted asset can legitimately target a different return and multiple profile from a development or buyout strategy. Comparing only the multiple or only the IRR strips away that risk and duration context.
The consequence is that multiple and IRR should be read against the holding period, and a fund reporting one without the other is reporting half the answer.
The J-Curve and Subscription-Facility Timing
Early in a fund's life, capital has been called and fees charged while assets have not yet appreciated or distributed. Reported returns are negative, then cross into positive territory as distributions begin — the J-curve.
The shape depends on the timing of capital calls, expenses, valuations and distributions. A subscription facility can defer investor capital calls and therefore alter early investor-level IRR and the apparent timing of the J-curve. That is exactly why a with-facility / without-facility presentation is useful.
NAV Loans and Continuation Vehicles
Two additional fund-level structures can also change the timing or source of investor distributions without changing the operating performance of the underlying asset.
A NAV loan can borrow against portfolio value and distribute proceeds to investors without selling the underlying asset. DPI then rises because cash was distributed, but the source of that cash was financing rather than realization. That distinction belongs in diligence.
DPI is mechanically based on distributed cash rather than unrealized marks, but the cash can still come from borrowing. “Realized cash” and “asset realization” are therefore not synonymous.
A continuation vehicle sells an asset from one fund to another managed by the same manager. The selling fund realises a gain, crystallises an IRR and a DPI, and the asset does not change hands in any economic sense. Where the price is set by a genuine third-party process with new investors setting the terms, this is a real transaction. Where it is not, it is a mark converted into a realisation.
Neither instrument is inherently problematic. A NAV loan can provide liquidity without an asset sale, and a continuation vehicle can extend ownership beyond an original fund term. The diligence question is narrower: what produced the distribution or realization, and what leverage / valuation remains after it?
The practical additions to the list below are therefore: was any distribution funded by borrowing, and was any realisation a sale to an affiliate.
What Should an Investor Look At?
Five things, and the IRR is not first.
DPI. Cash actually distributed relative to paid-in capital. Then ask whether that cash came from asset realizations, operating cash, refinancing or NAV borrowing.
MOIC or TVPI, with the holding period stated. A multiple without a duration is as incomplete as an IRR without a scale.
IRR and TVPI/MOIC with and without the subscription facility, using a stated methodology. ILPA's 2026 Performance Template is designed around exactly that comparison.
The gap between DPI and TVPI. Unrealised value the manager has marked. A large gap late in a fund's life is a question, not a number.
Cash yield on invested capital. For an income asset this is the most directly relevant measure and the least reported — what percentage of invested capital arrives as cash each year.
What Does the Public Market Equivalent Add?
A benchmark, which is the thing every measure above lacks.
IRR, MOIC and DPI all describe a fund in isolation. None answers the question an allocator actually faces: was this better than the alternative of putting the same money, on the same dates, into a liquid index?
Public market equivalent methods answer exactly that. They take the fund's actual cash flow dates and amounts, apply them to a chosen index, and compute what the investor would have had. The output is a ratio — above one means the fund beat the index on the same timing, below one means it did not.
PME can add a public-market benchmark to the same dated cash flows. Whether and how a subscription facility affects the PME depends on which cash flows the analyst uses and how synthetic or facility-adjusted cash flows are mapped, so the methodology must be stated.
It handles the long hold naturally. Comparing a twenty-year infrastructure fund's IRR to a seven-year buyout fund's is meaningless; comparing each to what the same cash flows would have earned in a market index over its own period is not.
It forces a choice of benchmark, which is itself informative. An infrastructure manager arguing its returns should be compared to a utilities index rather than a broad equity index is making a claim about the asset class's risk that can be examined.
The limitations are real. PME is sensitive to the index chosen, it says nothing about risk beyond what the benchmark embodies, and it can be unstable where a fund's early cash flows are small. It is a cross-check rather than a replacement.
PME is another cross-check, not an ungameable answer. Its usefulness depends on benchmark selection and consistent treatment of the fund's actual or adjusted cash flows.
How Do You Build This in Excel?
As both measures, both facility cases, and the holding period alongside.
The two measures
MOIC = (Realized_Proceeds + Residual_Value) / Invested_Capital
IRR = IRR(Net_Cash_Flows)
DPI = SUM(Distributions_Realised) / SUM(Contributions)
TVPI = (SUM(Distributions_Realised) + Residual_Value) / SUM(Contributions)
The subscription line toggle
Without facility: Contribution at t=0
With facility: Contribution at t=Deferral, plus Facility_Cost
PF_IRR_NoFacility 15.07%
PF_IRR_WithFacility (24 months) 19.61%
PF_SubscriptionLineEffect +4.54 pp
PF_MOIC_NoFacility 3.66×
PF_MOIC_WithFacility 3.27×
PF_SubscriptionLineCost −0.39×
The exit sensitivity
Exit year IRR MOIC
7 15.07% 2.04×
20 15.07% 3.66×
Reporting an exit year alongside every return converts an incomparable number into a comparable one. The two rows above describe identical annualised performance and materially different outcomes for the holder.
The check that settles most arguments
PF_HoldingPeriodYears
PF_CashYieldOnInvestedCapital = Annual_Distribution / Contribution
= 10,479,268 / 67,883,125 = 15.4%
ℹ️ Note: Never compare an IRR across funds without comparing holding periods, and never compare a multiple without them either. The two measures answer different questions and each is meaningless on the dimension the other covers.
To build both measures, the subscription line comparison and the exit sensitivity, prompt Dezzmond with your contribution and distribution schedule.
What Do Investors Actually Check?
- What is the DPI, as distinct from TVPI?
- Is the IRR reported with and without the subscription facility?
- What is the holding period behind the multiple?
- How much of TVPI is unrealised, and how is it marked?
- What is the cash yield on invested capital each year?
- Would the performance fee have been earned without the facility?
- Is the manager's reinvestment assumption realistic given the redeployment record?
Frequently Asked Questions
What is the difference between IRR and MOIC?
IRR is a money-weighted return that is sensitive to the timing and amount of cash flows. MOIC is total value or proceeds relative to invested capital and has no time dimension. Use both.
How much does a subscription line affect reported returns?
On the worked example, a twenty-four month deferral raises the IRR from 15.07% to 19.61% — 454 basis points — and reduces the multiple from 3.66× to 3.27×, because investors bear the facility's cost.
Can an early exit leave the IRR unchanged?
Yes. Selling in year seven at a price giving the buyer the same return produces an identical seller IRR of 15.07% and a multiple of 2.04× against 3.66× on a full hold. Same annualised return, $1.62 less per dollar invested.
Why do infrastructure funds report lower multiples?
Because they hold assets longer and distribute income throughout rather than concentrating returns in an exit. A modest multiple over twenty years can represent a perfectly strong annualised return.
How much do fees cost over a long hold?
On the worked example, a 1.5% management fee and 15% carry over twenty years total about $44.4m against $67.9m of contributed capital — taking the return from 15.07% gross to 13.02% net, and the multiple from 3.66× to 3.01×.
Can DPI be engineered?
It can. A NAV loan can fund a distribution without an asset sale, which increases cash distributions while leaving leverage at the fund / portfolio level. A continuation transaction can also create a realization event. In either case, reconcile DPI to the source of cash and remaining exposure.
What is the most reliable measure?
There is no single one. IRR, MOIC/TVPI, DPI, holding period and the source of distributions answer different questions. Read them together and reconcile them to the underlying cash flows.
What does a PME add?
A benchmark comparison using dated cash flows and a chosen public index. The result depends on the benchmark and on which cash-flow methodology is used, including how subscription-facility effects are treated.
Closing: Two Levers, Both Legitimate, Both Worth Disclosing
Nothing in this post describes misconduct. An early asset sale, subscription facility, NAV financing or continuation transaction can all be legitimate portfolio tools. The analytical requirement is to disclose the cash-flow methodology and read IRR together with multiple, DPI, holding period and leverage.
What both have in common is that they move the headline return without improving what an investor receives — and in the subscription line case, while slightly reducing it. A manager can therefore report a materially better number by making two ordinary decisions, neither of which requires the assets to perform any better.
The fix is not to ban either practice. It is disclosure of a kind that costs nothing and is still not universal: report the IRR with and without the facility, report the multiple alongside the IRR, report the holding period alongside the multiple, and report DPI separately from TVPI.
Any investor holding those four disclosures can reconstruct what actually happened. Without them, a 19.61% IRR and a 15.07% IRR can describe the same assets, the same cash flows and the same manager — and the difference between them is a credit facility.
the next post takes the version of this that happens before a fund is involved at all: what a developer actually earns when it sells a project, and where the development premium comes from.
Sources: ILPA Performance Template — standardized performance metrics and cash-flow methodologies, effective for new funds from 2026 · ILPA Performance Template Guidance — performance with and without subscription-facility impact · SEC proposed private-fund performance rule — MOIC definition, IRR / subscription-facility discussion and PME · SEC Asset Management Advisory Committee — IRR timing, reinvestment and PME discussion · Dezzmond analysis; worked-example subscription-line and exit assumptions are illustrative.