Explain why private-market results cannot be read like listed-market returns, and compute and interpret the paid-in multiples DPI, RVPI and TVPI and when each is useful

CFA® Level III · Private Markets Pathway · Private Investments and Structures · L3.PK.1.c

The idea

The GP controls when capital is called and returned, so private funds report money-weighted IRRs and multiples, not time-weighted returns, and comparing them with an index needs a public market equivalent (PME). DPI = cumulative distributions ÷ paid-in capital, the realised cash investors have actually received. RVPI = NAV ÷ paid-in, the unrealised part, which depends on the GP's valuation. TVPI = DPI + RVPI. A fund with 100 paid in, 60 distributed and a NAV of 90 has a DPI of 0.60, an RVPI of 0.90 and a TVPI of 1.50. Early in a fund's life TVPI is mostly RVPI, so rely on DPI as the fund matures. The trap: multiples ignore timing. 1.5× over ten years is far weaker than 1.5× over four.

Formulas

Distributed to paid-in (DPI)

DPI = cumulative distributions ÷ paid-in capital

cumulative distributions: cash returned to the limited partners so far
paid-in capital: capital called and paid in so far

Realised cash only, so it is the multiple to rely on as a fund matures. A fund with 100 paid in and 60 distributed has a DPI of 0.60.

Residual value to paid-in (RVPI)

RVPI = NAV ÷ paid-in capital

NAV: the fund's remaining net asset value
paid-in capital: capital called and paid in so far

Unrealised and dependent on the general partner's valuations. Early in a fund's life it makes up most of the TVPI.

Total value to paid-in (TVPI)

TVPI = DPI + RVPI

DPI: cumulative distributions ÷ paid-in capital
RVPI: NAV ÷ paid-in capital

Multiples ignore timing: 1.5× over four years is far better than 1.5× over ten. Read it alongside the IRR and a public market equivalent.

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