TWR does not take into consideration the addition or withdrawal of funds. TWR would stay the same if you added 1000 in start of y2 and withdrew before y3. You would have lost a bundle, but TWR would exceed WACC…and try that IRR thing again. Tell me what you got and I’ll try to figure out where you went wrong.
The issue is, they are not. Imagine the yield in year 1 is -5% and in year 2 it is 30%. If you remove a significant amount of money at the end of year 1, you would have “earned” a loss with your entire principal in year 1 and will earn 30% over the next year just with the remainder. And vice versa.
IRR would show you the return with all cash flows taken into consideration, but it would not show you the true return earned, as it has no way to deal with the removal or addition of funds, nor for dealing with changing yields within the period.