Internal Rate of Return (IRR)

Internal Rate of Return (IRR) is a financial metric used to evaluate the profitability of investments, particularly in private equity, real estate, and other illiquid assets. It represents the annualized rate of return that equates the net present value of cash inflows and outflows over the life of an investment to zero. IRR accounts for the timing and magnitude of cash flows, making it a money-weighted measure.

In the context of family office software, IRR is often used to assess the performance of private investments managed within the portfolio. By calculating IRR, family offices can compare different investment opportunities or track the historical performance of assets. Software tools typically automate IRR calculations, ensuring accuracy and consistency while handling complex cash flow schedules. This helps decision-makers evaluate long-term investment strategies effectively.