AIF Performance Metrics – IRR | DPI | RVPI | TVPI | PME

TVPI (Total Value to Paid-in Capital), also called Multiple on Invested Capital or MOIC, is the fundamental measure of private fund performance. It is the sum of cumulative distributions and the residual value of unsold investments, divided by paid-in capital. It can equally be read as DPI plus RVPI. Because the residual value is an estimate that moves with each valuation, TVPI keeps changing until the fund is fully realised. Alongside IRR, the multiples PIC, DPI, RVPI and TVPI form the standard set used to judge how an Alternative Investment Fund has actually performed.

Table of Contents

1. Fund Return is Not Investor Return
2. Internal Rate of Return: Gross and Net
3. The J Curve
4. The Four Multiples
5. Benchmarking Against Listed Markets
6. Risk-Adjusted Measures
7. Which Metric Matters at Which Stage
8. Frequently Asked Questions

Check out NISM's Alternative Investment Fund Managers, the official NISM workbook for the Series XIX-C Certification Examination, published by Taxmann. Every measure discussed here is computed in the book against worked figures, including a full eight-year close-ended fund modelled in twelve steps from cash flow statement through gross and net fund IRR, the J-curve, hurdle rate distribution, the distribution waterfall and ROI metrics, to investor-level net IRR. The complete range of NISM certification workbooks is available on the NISM listing page.

1. Fund Return is Not Investor Return

An Alternative Investment Fund can report a strong internal rate of return and still have given its investors nothing. The two are not the same thing, and confusing them is the most common error in reading fund performance.

What an investor ultimately receives is what the fund distributes. If a fund generates a superior return and reinvests it rather than distributing it, investors continue to carry market risk on that return for every subsequent year it stays in the fund. Distribution of capital is therefore the single most important parameter in judging a fund, particularly one investing in illiquid securities where the Manager’s ability to realise and return cash is the real test.

The working rule is this: fund return should not be treated as investor return until it has actually been distributed, whether as dividend, interest, or distribution in any other form. Every metric below exists to measure some part of that gap.

2. Internal Rate of Return: Gross and Net

IRR is the discount rate at which the net present value of a series of cash flows equals zero. For a fund, those cash flows are capital calls going out and distributions coming back, with the residual value of unrealised investments treated as a terminal inflow.

Two versions are reported and the difference between them is not trivial.

Gross IRR is computed before management fees, expenses and incentive fees. It measures the Manager’s investment skill on the portfolio.

Net IRR is computed after all of them. It measures what the investor actually earned.

A fund quoting only its gross IRR is quoting the number that flatters it. The gap between the two is the cost of the fund, and on a fund charging a 2 percent management fee and 20 percent of additional returns, that gap compounds substantially over an eight-year life.

3. The J Curve

Return behaviour in Category I and Category II AIFs follows a predictable shape across the fund’s life, and it is worth understanding before reading any early-stage performance report.

In the vintage years, cash flows are negative. The fund is drawing down committed capital and deploying it, while management fees and expenses are being charged from day one. The underlying investments have not yet built meaningful value because the process has only just started, and exits are not contemplated at that stage.

Returns improve once investments begin to generate yield and are realised. Plotted cumulatively, the pattern traces the shape that gives it its name: a steep initial decline, a trough, then a rise into positive territory.

Two consequences follow. First, a negative IRR in years one to three of a private fund is normal and says almost nothing about eventual performance. Second, the gap between gross IRR and cumulative cash flow is exaggerated in the early years, because the total return statement includes the value of unrealised investments while the cash flow does not. As the fund matures the gap narrows, and at close the cumulative cash flow equals the cumulative total return.

4. The Four Multiples

Multiples answer the question IRR cannot: how much money came back, relative to how much went in. Four are in standard use.

4.1 PIC Multiple

Paid-in Capital multiple measures how invested the fund is. It is paid-in capital divided by capital commitments.

A fund with commitments of INR 1,000 crore of which INR 800 crore has been paid in has a PIC multiple of 0.80, or 80 percent. The higher the figure, the closer the fund is to the end of its drawdown phase and the more of its committed capital is at work.

4.2 DPI, the realisation multiple

Distributions to Paid-in Capital measures what has actually been paid out. It is cumulative distributions to investors divided by paid-in capital.

DPI = Total Distributions / Total Capital Contributions

On the same fund, cumulative distributions of INR 400 crore against paid-in capital of INR 1,000 crore give a DPI of 0.40, or 40 percent. This is the multiple that tells an investor how much money has come back, and it becomes more meaningful later in a fund’s life when there are more distributions to measure.

Whether a high early DPI is desirable depends on how the fund is performing. Where returns are average, investors generally prefer early distributions. Where returns are above average, investors may prefer distributions deferred so that capital stays invested.

4.3 RVPI, the unrealised multiple

Residual Value to Paid-in Capital measures the market value of the fund’s capital that has not yet been realised. It is the residual or fair market value of the underlying investments divided by paid-in capital.

RVPI = Assets under Management / Total Capital Contributions

A residual value of INR 1,100 crore against INR 1,000 crore of paid-in capital gives an RVPI of 1.10.

Early in a fund’s life RVPI is more representative of future returns than DPI, simply because little has yet been distributed. But it carries a caveat that should never be dropped: residual value is an estimate, and its accuracy depends entirely on the valuation methodology applied to unrealised assets. Those investments still carry market risk and guarantee nothing.

4.4 TVPI, also called MOIC

Total Value to Paid-in Capital is the fund’s investment multiple and the fundamental metric in private fund performance. It is also referred to as Multiple on Invested Capital, or MOIC, and as the net multiple. The three terms describe the same measure.

It can be computed two ways, which produce the same answer:

• Cumulative distributions plus residual value of unsold investments, divided by paid-in capital
• DPI plus RVPI

On the running example, a DPI of 0.40 and an RVPI of 1.10 give a TVPI of 1.50. Because RVPI is built into it, TVPI will keep moving until the fund is fully realised.

4.5 The four together

Multiple	Formula	Illustration	What it tells you
PIC	Paid-in capital / Capital commitments	800 / 1,000 = 0.80	How much of the commitment is deployed
DPI	Total distributions / Paid-in capital	400 / 1,000 = 0.40	How much cash has come back
RVPI	Assets under management / Paid-in capital	1,100 / 1,000 = 1.10	What is still held, at estimated value
TVPI (MOIC)	DPI + RVPI	0.40 + 1.10 = 1.50	Total value created per rupee paid in

5. Benchmarking Against Listed Markets

Category I and Category II AIFs invest primarily in unlisted companies and start-ups, which makes them difficult to benchmark. There is often no comparable fund and no broad-based index that matches the portfolio.

5.1 Kaplan-Schoar Public Market Equivalent

The KS-PME method¹ solves this by measuring the fund’s efficiency against what the same cash flows would have produced in the listed market. It takes the index return between the relevant dates of the fund, being the dates of capital calls, distributions and the valuation, and uses the market rate of return as the compounding factor to bring capital calls and distributions forward to the valuation date. It then computes the TVPI of the resulting figures.

KS-PME = (Sum of future value of distributions + NAV) / Sum of future value of capital calls

A market-adjusted TVPI greater than 1 means the fund outperformed the market. Below 1 means it did not. The method is, in substance, a market-adjusted TVPI.

5.2 Direct Alpha

Direct Alpha is a variation on the same approach. Instead of expressing outperformance as a multiple, it expresses it as a percentage over market returns, quantifying the alpha directly. Where KS-PME tells an investor whether the fund beat the market, Direct Alpha tells them by how much, in return terms.

6. Risk-Adjusted Measures

Return without reference to risk taken is incomplete. Three measures are in standard use for AIFs.

Sharpe ratio measures the excess return earned over the risk-free rate per unit of total risk, with total risk defined by the portfolio’s standard deviation. Returns on T-bills or Government Securities are commonly used as the risk-free rate.

Sharpe Ratio = (Rp − Rf) / Vp, where Rp is expected portfolio return, Rf is the risk-free return and Vp is the portfolio standard deviation.

Comparing two funds against the same benchmark, the one with the higher Sharpe ratio delivers more return for the same risk, or the same return for less risk. Ratios above 1 are preferable.

Treynor ratio computes the same excess return, but per unit of systematic risk as defined by portfolio beta rather than per unit of total risk. Where a fund is well diversified, the two ratios converge; where it is concentrated, the divergence between them is itself informative.

Value at Risk estimates the maximum loss the fund is unlikely to exceed over a defined period at a stated confidence level.

Alongside these, standard deviation, skewness, kurtosis and maximum drawdown are used to characterise the shape of a fund’s return distribution rather than just its average.

7. Which Metric Matters at Which Stage

No single number works across a fund’s life. The useful measure changes as the fund matures.

Stage	Most informative	Why
Investment period, years 1 to 3	PIC multiple	IRR is negative by construction and DPI is near zero. What matters is whether capital is being deployed
Mid-life, years 3 to 5	RVPI and TVPI	Value is being built but little realised. Read RVPI with the valuation policy in mind
Harvesting, years 5 onward	DPI and net IRR	Distributions are the test. DPI converges on TVPI as the fund realises
Across the whole life	KS-PME or Direct Alpha	Answers whether the illiquidity and the fees were worth it against a listed alternative

Professionals working through these computations will find calculators and utilities at Taxmann’s Tools. For structured programmes covering fund performance and the NISM certifications, see Taxmann.com | Learning. Students preparing for CFA, MBA (Finance) and professional examinations will find the supporting titles at Taxmann.com | Students.

8. Frequently Asked Questions

8.1 What is TVPI?

Total Value to Paid-in Capital. It is cumulative distributions plus the residual value of unsold investments, divided by paid-in capital. It can also be computed as DPI plus RVPI.

8.2 What is the TVPI formula?

TVPI = (Cumulative distributions + Residual value) / Paid-in capital, which is the same as DPI + RVPI.

8.3 Is TVPI the same as MOIC?

Yes. Total Value to Paid-in Capital is also known as Multiple on Invested Capital, and as the net multiple. All three terms refer to the same measure.

8.4 What is the difference between TVPI and DPI?

DPI counts only what has actually been distributed to investors. TVPI counts distributions plus the estimated value of what the fund still holds. DPI is realised; TVPI includes unrealised value and therefore keeps moving until the fund is fully realised.

8.5 What is a good DPI for a fund?

It depends on the stage. Early in a fund’s life a low DPI is expected because little has been realised. Later, DPI approaching or exceeding 1.0 means investors have received back at least what they paid in. Whether a high early DPI is desirable also depends on performance: where returns are above average, investors may prefer distributions deferred.

8.6 What is the J curve in private equity?

The pattern produced when a fund’s cumulative cash flow is plotted over its life. Cash flows are negative in the early years as capital is drawn and fees are charged, then turn positive as investments are realised, tracing a J shape.

8.7 What does a KS-PME above 1 mean?

That the fund outperformed the listed market index over the same period, after adjusting the fund’s capital calls and distributions for market returns. Below 1 means it underperformed.

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1. Kaplan, S. and Schoar, A. (2005). Private Equity Performance: Returns, Persistence, and Capital Flows. Journal of Finance, 60, 1791–1823.