Filtering using IRR and CoC is dangerous
The dangers of single metric filtering
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Why focusing on IRR and CoC can harm you as an LP
Happy Wednesday! 👋
I hear from LPs weekly who filter deals by IRR or other similar metrics. Why should you spend time looking at the 12% IRR deal, when you have another one in your inbox that is 30%… right?!
Wrong.
In the vast majority of cases, I think these filtering mechanisms are risky (to the LP) at best and can cause serious principal losses at worst.
Today I’d like to explain why I have such a strong stance on something that seems fairly standard practice among retail LP investors.
Let’s dive in: