DPI

How DPI works

DPI answers one question with no room for interpretation: of the money investors have put in, how much has come back as cash?

The formula in words: cumulative distributions to limited partners divided by cumulative capital paid in by limited partners.

As symbols:

DPI = cumulative distributions / paid-in capital

Two inputs, and each one has a convention worth knowing.

Paid-in capital is not committed capital. Invest Europe's reporting guidelines state the point directly: paid-in capital means committed capital that has been called by the fund, the contributed capital, and not the total committed capital. A fund with $500,000,000 of commitments that has drawn $180,000,000 has a denominator of $180,000,000. This is why a young fund's DPI can rise sharply on a single exit: the denominator is still small.

Distributions are cash and marketable securities actually transferred to limited partners, net of carried interest under the standard net presentation. Distributions in kind, most often shares of a portfolio company that has gone public, are included at their value on the distribution date. Two practices complicate the number. Some partnership agreements permit distributions to be recallable, in which case a distribution that is later called again may or may not reduce paid-in capital depending on the agreement's wording. And a fund that uses a credit facility to delay capital calls will show a smaller denominator for the same underlying activity, which flatters DPI in exactly the same way it flatters internal rate of return.

DPI belongs to a family of three multiples that are defined together and always reconcile.

• DPI, distributions to paid-in capital: cash returned over capital called.
• RVPI, residual value to paid-in capital: the current fair value of assets still held over capital called.
• TVPI, total value to paid-in capital: the sum of the two.

The identity is exact:

TVPI = DPI + RVPI

Reading the three together is the whole skill. DPI alone says nothing about what remains. RVPI alone is an estimate. TVPI mixes proven cash with an opinion. A fund at 2.5x TVPI made of 2.3x DPI and 0.2x RVPI is a nearly finished fund that worked. A fund at 2.5x TVPI made of 0.2x DPI and 2.3x RVPI has proven almost nothing yet.

DPI also has a natural trajectory. It is zero at the start, stays near zero for years while capital is called and nothing is sold, and then climbs in steps as exits occur. It never falls, except through the mechanics of recallable distributions. That monotonic climb is the mirror image of the J-curve in reported returns.

Gross and net matter. The standard presentation is net of management fees, expenses and carried interest, because that is what an investor actually receives. Gross DPI, measured at the deal level before fund-level fees, will always be higher and is not comparable to a net number. Any DPI quoted without that label is ambiguous.

Worked example

Follow one fund through its life. All figures are hypothetical.

The fund has $300,000,000 of commitments, a 2 percent management fee, and 20 percent carried interest over a whole-of-fund waterfall.

Year three. Capital called to date is $110,000,000, comprising $92,000,000 of investments and $18,000,000 of fees and expenses. One small acquisition has returned $4,000,000. DPI is 4 divided by 110, or 0.04x. The portfolio is carried at $118,000,000, so RVPI is 1.07x and TVPI is 1.11x.

Year six. Capital called reaches $255,000,000. Three exits have distributed $95,000,000 in total. DPI is 95 divided by 255, or 0.37x. The remaining portfolio is carried at $430,000,000, so RVPI is 1.69x and TVPI is 2.06x. Read that carefully: the fund looks like a 2x fund, but investors have received back only 37 cents on the dollar.

Year eight. A portfolio company lists publicly. The fund's stake is worth $260,000,000 at listing and is distributed in kind six months later, after lockup, at $215,000,000. Total capital called is now $290,000,000 and cumulative distributions are $310,000,000. DPI is 310 divided by 290, or 1.07x. The fund has returned capital. Carried interest can begin to be paid under a whole-of-fund waterfall, because contributed capital has been returned.

Year eleven. Remaining positions are sold for $265,000,000 net. Cumulative distributions reach $575,000,000 on $300,000,000 of paid-in capital. Final DPI is 1.92x, RVPI is 0.00x, and TVPI equals DPI at 1.92x. At the end of a fund's life the two numbers always converge, which is the cleanest way to see what RVPI was: a forecast that eventually gets marked to cash.

One more calculation. Compare that fund with a second fund of the same size that reached 1.92x TVPI in year six, but with a DPI of 0.15x. Both report the same multiple. Only one of them has demonstrated it. If the second fund's marks were 20 percent optimistic, its true multiple is nearer 1.6x and nobody will know for another five years.

Where it shows up

In the quarterly limited partner report, DPI appears in the performance summary next to RVPI, TVPI and net internal rate of return, usually shown both since inception and for the current period, and often split between the fund as a whole and the individual limited partner's own position. ILPA's Reporting Template standardizes the surrounding presentation of fees, expenses and offsets so that the net figures are comparable between managers, and its supplemental guidance includes a formulas overview for the template's calculated fields.

In the capital account statement, the components of DPI are visible line by line: beginning capital balance, contributions in the period, distributions in the period, allocated management fees, partnership expenses, carried interest allocation, realized and unrealized gain, and ending balance. Summing the contributions column since inception gives the denominator; summing the distributions column gives the numerator.

In the distribution notice sent with each payment, the amount is broken into return of capital, realized gain and, where applicable, carried interest, together with whether any part of the distribution is recallable. That recallable flag is what determines whether a later re-call reduces reported paid-in capital.

In the limited partnership agreement, DPI itself is rarely defined, but everything that drives it is: the distribution waterfall, the preferred return, the clawback, and the recycling provision that permits distributions to be reinvested. ILPA's Principles describe the whole-of-fund waterfall, in which all contributed capital and any preferred return are returned before carried interest is paid, as best practice, and note that it reduces dependence on clawback.

In benchmark reporting, DPI is used alongside internal rate of return to rank funds within their vintage year. Cambridge Associates builds its private investment benchmarks from managers' quarterly fund financial statements and reports rankings within vintage by both rate of return and multiples, which is the only fair way to compare funds whose deployment periods differ.

In fundraising materials for a successor fund, DPI by prior vintage is the first table experienced investors turn to, precisely because it is the one number a manager cannot improve with a valuation policy.

Common mistakes

Dividing by commitments instead of by called capital. This is the single most common error and it understates DPI badly in a fund that has not drawn its full commitment. Paid-in capital means called capital.

Comparing DPI across vintages. A year-four fund and a year-ten fund are not comparable on DPI in any meaningful way. Compare within vintage, or compare against the same point in each fund's life.

Treating DPI above 1.0x as a good result by itself. Returning capital is the threshold, not the objective. A fund at 1.1x DPI with nothing left in the portfolio has, after a decade of illiquidity, returned slightly more than it took.

Mixing gross and net. Deal-level gross multiples exclude fund fees and carry and will always look better. A gross number compared with a net benchmark is not a comparison.

Ignoring distributions in kind. Stock distributed at listing and stock sold months later are different amounts of money. A manager who distributes at the top of a lockup window and an investor who sells late can report very different realized outcomes on the same position.

Overlooking the credit facility effect. Delaying capital calls with a subscription line shrinks paid-in capital for a period and raises reported DPI and internal rate of return without changing the underlying economics. ILPA has pressed for the preferred return to accrue from the date the facility is used rather than the date capital is finally called, for the same reason.

Forgetting recycling. A fund permitted to recycle early proceeds into new investments will show a lower DPI than one that distributes immediately, even if the two produce identical total value.

Related terms

DPI is one leg of the standard triple with TVPI and RVPI, which reconcile exactly. It is read alongside IRR, which adds the timing of cash flows that DPI ignores, and against MOIC, which is usually a deal-level gross multiple rather than a fund-level net one. Its shape over time is the mirror of the J-curve, and the mechanism that produces the distributions is the distribution waterfall, constrained by the hurdle rate and the clawback.

Frequently asked questions

What does DPI mean in private equity?

Distributions to paid-in capital. It is the ratio of cash a fund has actually distributed to its investors over the capital those investors have actually funded. A DPI of 0.7x means seventy cents has come back for every dollar called. A DPI of 1.0x means investors have received their called capital back.

What is a good DPI?

It depends entirely on the fund's age. Early in a fund's life a DPI near zero is normal and says nothing. By year eight or so, investors expect meaningful realizations, and a DPI at or above 1.0x means capital has been returned. The only sound comparison is against other funds of the same vintage at the same point in their lives.

What is the difference between DPI and TVPI?

DPI counts only realized cash returned. TVPI adds the fair value of everything the fund still holds. The identity is that TVPI equals DPI plus RVPI, so the gap between TVPI and DPI is exactly the unrealized portion, which is a valuation estimate rather than a result.

Is DPI the same as MOIC?

Not usually. DPI is a fund-level, net-of-fees measure of realized cash over called capital. MOIC is most often used at the deal level and gross of fund fees, comparing total value, realized and unrealized, to the capital invested in that position. They can coincide by accident but they are answering different questions.

Can DPI go down?

In the normal case no, because distributions accumulate and never reverse. The exception is recallable distributions: if a fund distributes proceeds and later recalls them under a recycling provision, the numerator or denominator can move depending on how the partnership agreement treats the recall. Clawback payments from the general partner also adjust the picture at the end of fund life.

Why do investors trust DPI more than IRR?

Because DPI has no unrealized component and no timing assumption. Internal rate of return depends on carrying values for the remaining portfolio and is sensitive to when capital was called, which a subscription credit facility can shift. DPI is a ratio of two cash totals, so the only judgment inside it is the accounting for distributions in kind.

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