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Transparency in Fund Returns is Essential
The lack of standardization in how funds report their returns can lead to misleading representations of performance. Some funds selectively present metrics, like only showing gross internal rate of return (IRR) while omitting net IRR or total paid-in capital, creating an illusion of superior performance. Furthermore, some late-stage funds manipulate their metrics by using lines of credit to artificially boost IRR just before fundraising, obscuring true performance. Indicators such as exceptionally high IRRs paired with no distributions of paid-in capital (DPI) should raise red flags for potential investors, revealing that some firms may be engaged in deceptive practices.