IRR, TVPI, DPI, RVPI, MOIC and PME explained for LPs

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Read them together, and weight them by the fund's age. Early in a fund's life, nearly all value is unrealized, so multiples and IRR rest on valuations. Later, distributions take over, and DPI becomes the measure that matters most. No single number tells you how a fund is doing.

The measures

  • IRR, internal rate of return. The annualized return that accounts for when cash moved in and out. It rewards early distributions and can be flattered by subscription lines that delay capital calls. Ask whether the IRR is calculated with or without the effect of a credit facility.
  • TVPI, total value to paid-in. Distributions plus remaining value, divided by capital contributed. It is the overall multiple, combining realized and unrealized value.
  • DPI, distributions to paid-in. Cash actually returned, divided by capital contributed. It is the only measure that does not depend on valuations. A DPI of 1.0 means you have your money back.
  • RVPI, residual value to paid-in. Remaining unrealized value divided by capital contributed. TVPI equals DPI plus RVPI.
  • MOIC, multiple on invested capital. Usually reported at the company or portfolio level, often gross of fees and carry. It shows how investments performed, not what investors received.
  • PME, public market equivalent. Compares the fund's cash flows with the same flows invested in a public index. A result above 1.0 means the fund beat the index on the same timing.

Which to read when

  • Years one to four. Expect low DPI and valuation-driven TVPI and IRR. Focus on whether the manager is deploying as planned and how marks are set.
  • Years five to eight. DPI should begin to move. Watch the split between DPI and RVPI.
  • Later years. DPI and PME carry most of the weight. Large remaining RVPI late in a fund's life deserves questions about exit paths.

Questions to ask the manager

  • Are reported figures gross or net of fees, expenses and carry?
  • Does the IRR reflect a subscription line, and what is it without one?
  • How are unrealized holdings valued, and how often are marks updated?
  • What share of TVPI is realized?

Related questions

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