IRR

IRR, the internal rate of return, is the annualized rate at which a series of cash outflows and inflows nets to zero, so it reflects both how much came back and when. For legal assets it is highly sensitive to duration.

With a single outflow and a single inflow, IRR follows directly from the multiple and the time between them. Real positions are drawn in tranches and repaid in pieces, so a full calculation uses the actual dated cash flows.

Because time sits in the denominator, small changes in duration move IRR materially, and the effect is greatest on short matters that look safe. A single unpriced continuance on a short matter can cost more annualized return than a longer delay on a long one.

IRR is computed from distributions and stated terms. It is not a prediction of what any matter will realize.