How do you calculate net IRR and gross IRR?
So I've seen the cash flows calculated for net IRR in two different ways in PE:
Way 1:
Annual cash flows = Capital called - fees + returns (or NAV) - carried interest (if exit period CF)
Then an XIRR or IRR formula of said cash flows will give you the net IRR
Way 2:
Annual cash flows = Capital called + returns (or NAV)
Then an XIRR or IRR formula of said cash flows will give you the net IRR. Adding the fees (absolute figure) would give you the cash flows for gross IRR
Both are obviously very different and it's extremely confusing. All I want to find is the net IRR of a single-asset fund. Can anyone help me with understanding the right formula? Thank you in advance
Net IRR formula is the same for a single asset fund or multiple assets. If you have access to the cash flows then run XIRR on the numbers below (repeating rows as required)
Date | Capital called
Date | Distributions
Date | NAV
Capital called can be for investment, management fees or partnership expenses.
Carry is typically paid out of distributions (rather than being called).
Make sure you take the NAV inclusive of accrued carry.
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