Net IRR is the internal rate of return calculated on limited partner cash flows — capital calls and distributions — after deducting management fees, fund expenses, and general partner carried interest.

How it works

While gross IRR measures portfolio company-level cash flows before fund economics, net IRR reflects what LPs experience. Every management fee call reduces net IRR relative to gross. Carry paid to the GP on profitable exits further widens the gap. A fund reporting 22% gross and 15% net IRR shows roughly seven points of fee and carry drag — typical but worth comparing across managers. Net IRR is sensitive to distribution timing: early DPI improves net IRR even before final fund liquidation. Interim net IRR on young funds relies partly on unrealized valuations, same caution as gross. LP reporting standards increasingly emphasize net metrics and cash multiples alongside IRR.

Why it matters

• Investors / LPs: Net IRR is the appropriate headline for allocator decisions. Always request net alongside gross, DPI, and RVPI for the same vintage.
• Founders: Indirect relevance — GPs with strong net IRR raise subsequent funds more easily, affecting capital availability.

Common mistake

Accepting gross IRR marketing materials without net IRR for the same period. The spread reveals true LP economics.

Related ideas

IRR, internal rate of return gross, carried interest, management fee, and DPI translate performance to LP outcomes.