What should an investor verify first?

Whether the IRR being quoted is gross (before fees) or net (after fees and carry) to the investor.

Which documents matter most?

The fund's fee and carried-interest structure in the PPM, used to calculate the true net figure.

What is the main downside to test?

A marketing deck featuring gross IRR prominently while net IRR is relegated to a footnote.

How should the final decision be made?

Base any comparison or commitment decision on net IRR, never on the gross figure alone.

Back to JournalPrivate-Market Performance and Monitoring

Gross IRR vs Net IRR: What an AIF or PE Fund Actually Pays You

Reena M1 min read

Understanding the Reported Outcome

Gross IRR measures the fund's return on its underlying investments before any fees, expenses or carried interest are deducted. Net IRR is what actually reaches the investor's pocket after all of that is subtracted — and the gap between the two can be substantial.

Reading Cash, Value and Timing Together

A typical Category II AIF might report a gross IRR of 22% and a net IRR of 16-17% after a 2% management fee and 20% carried interest above a hurdle. The exact gap depends heavily on the specific fee structure, hurdle rate, and whether the fund has crossed its hurdle yet.

Where Monitoring Can Mislead

The common failure is a marketing deck prominently featuring gross IRR in large type while net IRR appears, if at all, in smaller print or a footnote. Only net IRR reflects what an investor actually receives — gross IRR is a measure of the underlying assets' performance, not the investor's return.

Making the Ongoing Decision

Always ask for and rely on net IRR when evaluating or comparing funds. If only gross IRR is provided, request the specific fee and carry structure and calculate the approximate net figure before making any decision based on the headline number.

Gross IRR describes the fund manager's skill with the underlying assets; net IRR describes what the investor actually earns — never confuse the two when making a decision.

Key takeaways

Gross IRR is before fees and carry; net IRR is what actually reaches the investor.
The gap between the two can be substantial — often 4-6 percentage points for a typical Category II AIF.
Marketing decks often feature gross IRR prominently while net IRR appears only in smaller print.
Always base decisions on net IRR, or calculate it explicitly if only the gross figure is provided.

More in Private-Market Performance and Monitoring

Continue with the other chapters in this module.

Private-Market Performance and MonitoringHow to Monitor an AIF After InvestingMonitoring an AIF after committing capital is an active, ongoing process, not a passive wait for the fund's eventual exit.Private-Market Performance and MonitoringHow to Read an AIF Quarterly ReportA quarterly report is the primary window an investor has into a fund between its annual meetings, and reading it well means connecting several sections together rather than skimming the summary...Private-Market Performance and MonitoringHow to Read an AIF Capital-Account StatementA capital-account statement is the official, administrator-issued record of an individual investor's specific position in a fund — distinct from the fund-level quarterly report, and the document...