What is the rule of 72 in private equity?

The Rule of 72: A Quick Way to Measure Growth in Private Equity

When it comes to private equity and long-term investing, one of the simplest yet most powerful tools is the Rule of 72. While it’s not a hard-and-fast law, it’s a reliable mental shortcut investors use to estimate how long it will take for their money to double.

Here’s how it works: divide 72 by the annual rate of return you expect. The result is roughly how many years it will take to double your investment. For example, if you invest $10,000 and anticipate an average return of 8% per year, dividing 72 by 8 gives you 9. That means your $10,000 should grow to $20,000 in about nine years—assuming steady growth.

Private equity investors often use this rule during early discussions to quickly assess potential deals. An 8% return might come from more stable, mature investments, while higher returns—say, 12% or more—are typical in aggressive growth strategies. At 12%, the Rule of 72 shows your money could double in just six years. Of course, higher returns usually come with higher risk, especially in private markets where liquidity and transparency are limited.

What makes the Rule of 72 so useful is its simplicity. You don’t need a spreadsheet or financial model to get a sense of compounding power. It’s not perfectly precise, but it’s close enough for back-of-the-envelope planning.

Still, savvy investors know it’s just a starting point. Real-world factors like fees, market volatility, and exit timing can shift actual outcomes. But whether you're evaluating a startup fund or a buyout deal, the Rule of 72 remains a timeless tool for thinking about growth—quickly and clearly.