Jul 21, 2026
IRR is MOIC, annualised
One line of algebra behind the two numbers private markets run on
Omar Hussain
IRR is not a separate metric. It is MOIC, expressed per year. One line of algebra connects the two numbers private markets report, and it decides which one you can trust at a reporting date.
Why it matters: MOIC is how VC and PE funds show LPs how much value a position has created relative to the capital put into it. But comparing positions on MOIC alone is misleading when the investments were made at different times.
The reading is simple: below 1.0×, the position is worth less than the capital invested; above 1.0×, value creation.
A 3.0× earned over eight years is not the same as a 3.0× earned over two, yet MOIC treats them identically.
Two positions, two winners
Same fund, same reporting date. Investment A was entered two years ago; Investment B, five years ago.
| Investment A | Investment B | |
|---|---|---|
| Invested capital ($) | $1,000,000 | $1,000,000 |
| Holding period (years) | 2 | 5 |
| Current value ($) | $2,000,000 | $3,200,000 |
| MOIC (×) | 2.0× | 3.2× |
| IRR (% / year) | 41% | 26% |
The two metrics disagree. MOIC crowns B, since 3.2× beats 2.0×. IRR crowns A, since 41% a year beats 26%. Both are computed correctly.
MOIC says B. IRR says A. Both are right. They are simply answering different questions.
The one-line proof
To compare like for like, you annualise. Start from the definition of MOIC:
If that value compounds at an annual rate over a holding period of years, then Value = Invested Capital × (1 + r)^T. Divide both sides by invested capital and the left-hand side is just MOIC:
Solve for the rate:
That rate is the IRR of a single cash-in, cash-out investment. It is the same move as inverting the present-value formula you already know, because MOIC is nothing more than FV / PV:
First principle
IRR is MOIC annualised. It is a function of two things: the multiple and the holding period. Change the horizon and the same MOIC gives you a different IRR. That is precisely why MOIC alone cannot be compared across positions held for different lengths of time.
Which number to trust
IRR, if your capital can be redeployed. A's 41% annualised means the money compounds faster, and speed of capital return is real economic value.
Reinvested at the same rate, A's two-year 2.0× would grow to roughly 5.7× over five years, comfortably ahead of B's 3.2×.
It answers the LP's question: "how quickly do I get my money back to reinvest?"
Across different holding periods, it is the only apples-to-apples measure.
MOIC, if it cannot. That 5.7× is hypothetical: it assumes you can find another 41% home for the money, the reinvestment assumption baked into IRR.
If the capital is locked, the strategy cannot be repeated, or total dollars out is all you care about, the multiple on the table is what matters, and B's 3.2× wins.
With equal holding periods, skip the algebra: the higher multiple simply wins.
The rule
MOIC tells you how much. IRR tells you how fast. When the holding periods differ, IRR is the only apples-to-apples comparison, so annualise before you rank.