Introduction
For private equity investors, tracking performance goes beyond simply tracking stock market returns. Investments in Venture Capital, Growth Equity, and Private Debt involve long-term capital commitments and illiquid assets. This is where key performance indicators such as DPI (Distributions to Paid-In Capital), RVPI (Residual Value to Paid-In Capital), and TVPI (Total Value to Paid-In Capital) become essential. These metrics allow asset managers and LPs to evaluate fund performance, track unrealised gains, and compare investment strategies.
What are DPI, RVPIm and TVPI?
DPI (Distributions to Paid-In Capital)
DPI measures how much capital has been returned to investors relative to the capital they contributed. It provides insight into realised returns and liquidity.
Formula: DPI = Cumulative Distributions ÷ Paid-In Capital
Interpretation:
- A DPI of 1.0 means investors have received their initial investment back.
- A DPI greater than 1.0 indicates that the fund has generated returns beyond the initial capital.
- A DPI below 1.0 suggests the fund has yet to return all committed capital.
RVPI (Residual Value to Paid-In Capital)
RVPI (Residual Value to Paid-In) measures the unrealized value of remaining investments relative to the capital contributed by investors. In fact, RVPI is one of the most strategic KPIs in private equity and venture capital, as it reflects the theoretical fair value of the portfolio at a given point in time. It provides insight into the current fair value of a fund's assets that have not yet been realized through exits or distributions.
Formula: RVPI = Residual Value ÷ Paid-In Capital
Interpretation:
- High RVPI means the fund still holds significant unrealised value, which may translate into future distributions.
- A low RVPI suggests most of the fund's value has already been distributed, or low performance of the investments.
TVPI (Total Value to Paid-In Capital)
TVPI reflects the total value of an investment portfolio, including both realised returns (distributions) and unrealised gains (remaining portfolio value). It provides a comprehensive measure of a fund’s overall return potential before full liquidation.
Formula: TVPI = (Cumulative Distributions+Residual Value) ÷ Paid-In Capital = DPI + RVPI
Interpretation:
- TVPI includes both distributed and remaining value, making it a more comprehensive indicator than DPI.
- A high TVPI signals strong performance but requires investors to assess liquidity risks.
Why do DPI, RVPI, and TVPI matter in Private Equity?
Assessing fund performance is key for both Limited Partners (LPs) and General Partners (GPs) in the private equity world. Key metrics like DPI (Distributed to Paid-In), RVPI (Residual Value to Paid-In), and TVPI (Total Value to Paid-In) offer valuable insights into a fund's success and guide critical decision-making.
Fund Performance Assessment:
These metrics help fund managers and LPs (Limited Partners) assess the effectiveness of an investment strategy. DPI measures realised returns, RVPI isolates unrealised value, indicating future return potential, and TVPI offers a comprehensive performance view.
Liquidity & Exit Strategy:
These metrics are fundamental for assessing liquidity risk and planning exit strategies. DPI directly indicates the fund's liquidity position by showing how much capital has been returned to LPs. RVPI provides an estimate of future cash flows, helping investors understand the potential for future liquidity events.
Comparability Across Funds:
DPI, TVPI, and RVPI allow investors to benchmark fund performance against industry averages and peer funds. This comparative analysis helps LPs identify top-performing fund managers and adjust portfolio allocations accordingly.
How ScaleX Invest Enhances Performance Monitoring
At ScaleX Invest, our data-driven solutions provide asset managers with the tools to track and optimise fund performance using advanced models and automation.
Advanced Valuation Models
ScaleX Invest has 10+ years of modelling expertise to continuously backtests and refines its models. Our automated valuation models maintain a <10% model-to-market valuation gap, ensuring reliable estimations. Insights are powered by data from 50,000+ tracked startups and scale-ups, providing deep sectoral knowledge. The <1% annual bankruptcy rate for A+ companies further validates the predictive strength of ScaleX Invest’s approach, as the risk profile is taken into account as a valuation assumption.
Integrated and Scalable Technology
ScaleX Invest’s API seamlessly integrates with CRMs and fund management tools. Automated LP reporting ensures compliance with IPEV, IFRS, and AIFMD. The platform operates on a SOC2-certified infrastructure with full GDPR compliance, providing secure and scalable data protection.
Schedule a demo to discover how our platform can elevate your valuations and unlock new investment opportunities.
FAQ
How do DPI, RVPI, and TVPI differ from IRR?
DPI, RVPI, and TVPI focus on capital deployment and value creation, while IRR (Internal Rate of Return) measures time-adjusted returns, incorporating cash flow timing into performance assessments.
Which metric is most important for LPs?
LPs prioritise DPI for tracking realised returns. TVPI provides a full view of potential total returns, while RVPI is more relevant for funds still in their investment period.
How can investors use DPI, TVPI, and RVPI together?
By analysing these three metrics together, investors can assess fund liquidity, total performance, and remaining portfolio value, leading to more informed exit strategies.
