Hold period
Factual definition
The hold period is the time an investment is held. It affects annualized returns, but a money multiple and duration alone determine internal rate of return (IRR) only under specified cash-flow assumptions.
Hold period in round numbers
Hypothetical gross equity investment: one initial outflow and one terminal inflow equal to 2.5 times that outflow, with no interim distributions, fees or additional capital. At exactly five years the annual IRR is 2.5^(1/5) − 1 = 20.11%; at exactly seven years it is 2.5^(1/7) − 1 = 13.99%.
More complex cash flows require their actual amounts and dates.
Scroll horizontally to read all columns.
| Hold | Gross equity multiple | Annual IRR |
|---|---|---|
| Exactly 5 years | 2.5x | 20.11% |
| Exactly 7 years | 2.5x | 13.99% |
Hold period versus investment period
The hold period follows an individual investment from purchase until sale. A closed-end fund’s investment period is the window set by its partnership agreement for calling capital to make investments.
Ending that window does not mean every portfolio company is sold that day. A company acquired near the end can remain in the portfolio afterward, subject to the fund’s terms.
For an investor waiting for a sale to receive cash, a longer hold also delays that expected payment. The return example above keeps the final proceeds constant, so the extra time lowers the annualized return without changing the money multiple.
Definitions: ILPA’s holding-period glossary entry and ILPA Principles 3.0, investment period.
Shayne Fitz-Coy on longer holding periods
In his Private Equity Strategy & Fundamentals lecture, Shayne Fitz-Coy commented on average holding periods at the time:
Average hold period is approaching 7 years. That is long.
Where Hold period fits
Explore this term in the glossary cloud →