Equity Multiple
A measure of total return on invested equity, calculated by dividing total distributions received by total equity invested. An equity multiple of 2.0x means investors doubled their money. Unlike IRR, equity multiple does not account for the timing of returns but provides a simple measure of total profit.
Related Terms
IRR (Internal Rate of Return)
A metric used to evaluate the profitability of an investment over its entire holding period, accounting for the time value of money. IRR represents the discount rate at which the net present value of all cash flows equals zero. Investors typically target IRRs of 15-25% depending on risk profile and investment strategy.
Preferred Return (Pref)
A priority return that must be paid to investors before the general partner or sponsor participates in profits. Typical preferred returns range from 6-10% annually. The pref may be cumulative (unpaid amounts accrue) or non-cumulative. Once the preferred return is satisfied, remaining profits are split according to the promote structure.
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