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CFA Level I · CFA Level I Exam · Investments in Private Capital: Equity and Debt

Compared with a fund's since-inception internal rate of return (SI-IRR), the multiple of invested capital (MOIC) of a private equity investment is most likely to:

MOIC most likely ignores the timing of cash flows. It simply divides total value by invested capital, so a quick exit and a slow exit with the same proceeds give the same multiple, whereas IRR rewards earlier cash flows and penalizes longer holding periods.

  1. Aignore the timing of cash flowsCorrect
  2. Breflect the length of the holding period
  3. Cpenalize investments held for longer periods

Explanation

MOIC is total value divided by invested capital and ignores when cash flows occur. IRR is time-sensitive, so a longer holding period lowers IRR for a given multiple. The other options describe IRR-type behavior.

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