Gross IRR (internal rate of return gross) measures the annualized return on a fund’s portfolio investments before subtracting management fees, fund expenses, and carried interest paid to the general partner.

How it works

IRR is the discount rate that sets net present value of all cash flows — capital calls and distributions — to zero. Gross IRR calculates these flows at the portfolio company level: investments in and proceeds out, ignoring LP-level fees. Net IRR starts from LP cash flows after fees and carry, showing what limited partners actually earned. A fund might report 25% gross IRR and 18% net IRR — the spread reflects fee drag. Gross IRR helps isolate GP picking skill from fund economics. Early in a fund’s life, gross IRR can look strong on paper marks before realizations; mature gross IRR based on cash distributions is more meaningful. Comparing gross IRR across funds requires similar vintage and stage strategies.

Why it matters

• Investors / LPs: Always pair gross IRR with net IRR and DPI. High gross with weak net suggests expensive fee structures or early unrealized marks.
• Founders: Less direct relevance, though GPs citing strong gross returns may have more reserve capital and fundraising momentum.

Common mistake

Quoting gross IRR to LPs without net IRR and cash returned. Paper gross IRR on marked-up positions overstates realized performance.

Related ideas

IRR net, IRR, DPI, TVPI, and carry economics explain gross-to-net translation.