IRR, MOIC, DPI, RVPI, and TVPI
Private-fund return measures separate timing, value, cash distributions, and residual valuations. Consistent denominators and gross-versus-net treatment are essential for comparison.
Internal rate of return, or IRR, is the discount rate that makes the net present value of a specified cash-flow sequence zero. Multiple of invested capital, or MOIC, compares distributed and remaining value with invested capital. IRR incorporates timing; MOIC does not.
For a private fund, distributions to paid-in capital, or DPI, measures cash distributed relative to contributions. Residual value to paid-in capital, or RVPI, measures remaining reported value relative to those contributions. Total value to paid-in capital, or TVPI, is their sum.
Paid-in capital is distinct from commitments
An investor’s commitment is the contractual amount available to be called under the fund agreement. Paid-in capital is the amount actually contributed under the reporting convention.
Take a fund with $100 million of commitments and $40 million of paid-in capital. A $24 million distribution equals 0.6 times paid-in capital, not 0.24 times. The second ratio uses commitments and answers a different question.
The denominator must remain consistent when contributions include fees and expenses or when the agreement permits recycling and recallable distributions.
DPI and RVPI distinguish cash from a valuation
Continue with $40 million paid in, $24 million distributed, and remaining net asset value of $36 million. DPI is $24 million divided by $40 million, or 0.6x. RVPI is $36 million divided by $40 million, or 0.9x. TVPI is 1.5x.
The investor has received cash equal to 60% of contributions. The remaining 0.9x is reported value, not cash already returned.
A change in residual valuation changes RVPI and TVPI without changing DPI. A distribution changes the cash record, but its source still matters: operating proceeds, an asset sale, and fund borrowing are different ways to finance a payment.
Timing changes IRR without changing the multiple
Take a single contribution of $100 and a single receipt of $200, with no fees or intermediate cash flows. If the receipt arrives after three years, the annual IRR is approximately 26.0%. If it arrives after ten years, the annual IRR is approximately 7.2%.
Both investments return 2.0x contributed capital. The different IRRs reflect the time taken to produce that result.
More complicated cash-flow sequences require care. Multiple sign changes can produce more than one mathematical IRR, and an interim fund IRR depends on the residual value included at the measurement date.
Compare the same level and cost basis
A portfolio investment’s gross MOIC is not automatically comparable with an LP’s net TVPI. Fund fees, expenses, carried interest, financing costs, and different definitions of invested capital can change both numerator and denominator.
Identify the reporting date, fund or investment level, cash-flow dates, valuation basis, and gross or net treatment before comparing performance. No single measure establishes timing, realized proceeds, and confidence in the remaining valuation at once.
Questions
- Can a fund have high TVPI and low DPI?
- Yes. Most of its reported value can remain in unsold investments. TVPI includes residual NAV; DPI records distributions relative to contributions.
- Does a 2x multiple tell me the annual return?
- No. The multiple omits timing. Doubling in three years and doubling in ten years both produce 2x but have different annualized returns.
- Are commitments the denominator of DPI?
- No. DPI uses paid-in capital under the reporting convention. Uncalled commitments are not contributions already paid.