What is the J-Curve in Private Equity?

The J-Curve in private equity investing is a graphical representation of the returns made by private equity funds through time. The shape of private equity fund performance when plotted on a line graph, resembles a capital “J”, hence the name J-Curve.
When a private equity commitment is made, the value of the commitment typically goes down during the early life of the fund. In the context of a graph, if the vertical axis represents the rate of return, typically expressed as an Internal Rate of Return (IRR) in private equity, and the horizontal axis represents time, the graph line curves down and to the right until the investment stabilizes at which point the line starts moving quickly up and to the right as the investment starts to perform and show profitability through time. The graph below is a model illustration of the J-Curve.
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