> the IRR clock doesn't start until they call capital from the LPs
Capital calls must be honoured on short notice. That means committed capital must be kept low-risk and liquid. That has an opportunity cost. While you are correct in conventional IRR, particularly that touted by funds, only starting the clock when capital is called, LPs measure their own IRRs that consider the opportunity cost of committed uncalled capital.
Do you have any inside info on how some of these big LPs are modeling opportunity cost against their growth equity commitments? My understanding gleaned from friends has been that they're generally just cutting exposure to growth-stage software and planning to park the capital in pretty vanilla/liquid public equities and fixed income anyway.
Seems like no one really wants to be interested in increasing their exposure to PE or growth equity anymore.
Thanks for sharing your perspectives in this thread. You seem to have a lot of deeper knowledge about how all this works. Any guidance on what to follow or where to learn to understand these complex dynamics of the investment world? I feel like much of what I’ve seen is more like the basics.
Capital calls must be honoured on short notice. That means committed capital must be kept low-risk and liquid. That has an opportunity cost. While you are correct in conventional IRR, particularly that touted by funds, only starting the clock when capital is called, LPs measure their own IRRs that consider the opportunity cost of committed uncalled capital.