Six ways to state the same fund's return, all of them true
The same fund has returned 7.12 per cent, or 18.04 per cent, or 1.323 times the public market. Nothing separates the readings except which question they answer.
A fund can be described accurately in six different ways and produce six answers
that do not resemble each other. The distance between the two most defensible readings of the fund
below is 10.92 percentage points — and neither of them is wrong.
This is not a story about misleading reporting. Every figure here comes out of the same eight
rows, and every one of them would survive an audit. The question is which of them describes what
the investor owns.
The fund
Year
Called
Distributed
Net to the investor
2018
45
0
−45
2019
60
0
−60
2020
50
8
−42
2021
40
35
−5
2022
30
62
32
2023
20
90
70
2024
10
75
65
2025
0
40
40
Total
255
310
55
$m. A $300m commitment; closing valuation $145m. Everything is net to the investor.
Called 255 of a 300 commitment, distributed 310, and holding a closing
valuation of 145. Eight years old, past its investment period, into the harvest.
The six readings
The measure
Value
What it answers
Distributions to paid-in (DPI)
1.216×
Cash out over cash in. The only line here that describes money the investor has.
Total value to paid-in (TVPI)
1.784×
DPI plus 0.569 of residual value — a valuation, not a receipt.
Net IRR, valuation treated as a sale
18.04%
The headline. It assumes the closing valuation is realised, today, in full.
Net IRR on realised cash alone
7.12%
The same fund with the valuation removed. The rate the cash has actually earned.
Point to point, the last three years
40.49%
The harvest window on its own, opening valuation treated as capital at risk.
Public market equivalent
1.323×
Every flow compounded at 9%. Above one means the fund beat the index.
One fund, one set of cash flows, one closing date. Every figure is correct.
Where the gap comes from
The headline rate of 18.04 per cent treats the closing valuation as though the
portfolio had been sold on the last day of the year at the number the firm itself wrote down.
Remove that assumption — keep every actual cash flow and delete the valuation — and the
rate is 7.12 per cent.
Of the total value claimed, 68.1 per cent is realised
and 31.9 per cent rests on the firm's own marks. That ratio, not
the rate, is the first thing a sophisticated investor looks for. It says how much of the track
record has been tested by a buyer.
The two rates answer two different questions. What has this fund earned on the money it took
and gave back? is 7.12 per cent. What will it have earned if today's marks
are right? is 18.04 per cent. Both belong in a report. Only one of them belongs in
a headline without a qualifier.
Two readings that get quietly dropped
The window, rather than the life
Take the last three years alone: opening valuation of 210 at the end of 2022 treated as
capital at risk, then the flows since, then the closing valuation. Over that window the fund runs
at 40.49 per cent. A fund is rarely one thing across eight years, and a
since-inception rate averages the harvest into the J-curve until neither is visible.
The commitment nobody counts
45 of the 300 was never called — 85.0 per cent drawn. Two
funds reporting the same multiple at different call rates have not done the same thing with the
investor's money, because undrawn commitment is an obligation the investor has been carrying, and
financing, the whole time.
And the one that compares
Every measure above is self-referential: the fund against itself. The public market equivalent
asks the only question an allocator actually has — was this better than the index?
Compound each call and each distribution at 9% to the closing date, add the residual
value, and divide.
Calls compound to 389.8. Distributions compound to 370.7. With the closing
valuation the fund is worth 515.7 against 389.8 of index-matched
capital: a public market equivalent of 1.323.
Set that beside a TVPI of 1.784. The multiple says the fund returned
1.78 times its money. The public market equivalent says it beat a passive alternative by
32.3 per cent. Both are true, and the second is the one that decides whether the fee
was worth paying.
What to do with this
For an investor relations professional: publish the realised rate beside the headline, before
someone else computes it. The gap of 10.92 points is not a weakness in this fund — it is
the ordinary shape of a portfolio that still holds assets. It reads as a weakness only when an
investor finds it themselves.
For an allocator: ask for the split between realised and unrealised before asking for the rate.
68 per cent realised and 32 per cent marked is a
different fund from the reverse, at the identical TVPI.
For anyone building the sheet: derive every measure from one flow table rather than typing six
answers. The point of the file is to change a single distribution and watch all six move —
which is also the fastest way to see which of them barely moves at all.
The workbook behind this article
Every figure above is a live formula in the companion file for
Private Equity Investor Relations. Change one distribution and
all six measures answer. It is free, and it needs no account and no email address.
Should corporate debt be fixed or floating?78.1818 per cent of gross debt fixed, and a net floating exposure after cash of -608,000.00 — the proportion, not the instrument.
Does an undrawn revolver count as liquidity?67.4567 per cent of the headroom, and it leaves at a fall in annual revenue of 8.4127 per cent — not the 13.3333 per cent the board deck implies.
Does supply chain finance count as debt?66,049,315 released, and leverage of 2.7622× or 3.1362× depending on which balance the test is asked of — the second is a breach at today's EBITDA.
How do you set a minimum cash balance?Three components, 124,596,281 in total — and the double count that turns a margin of 27,403,719 into an apparent shortfall of -3,988,281.
Is a 2/10 net 60 discount worth taking?An annualised 14.8980 per cent against a revolver at 4.50 per cent — worth 5,471,890 a year, and 0.3132 turns of reported leverage.
At what wealth does a family office pay?A five-person office costs the same $2,442,000 at $100m as at $2bn. Against a tiered multi-family schedule the two curves cross exactly once.
Does the fulcrum move with enterprise value?A worked capital structure at three enterprise values. The break migrates from the first lien to the subordinated notes without a single document changing.
How many companies does a reserve pool defend?Holding pro rata to the Series D costs $14.76m per company. A $40m reserve defends 2.71 of forty — and 61 per cent of the cost is the last round.
How much room a 1.15x downside actually leaves79 basis points of margin. The leverage covenant fails first, five basis points before the coverage covenant the chapter reports on, and 4.6 per cent of EBITDA is the whole cushion.
How the GP catch-up is actually solvedMost write-ups state the catch-up formula then hardcode the answer. Set it as a solve and it moves on its own when the carry rate does.
The IRR at which a closed-ended fund merely tiesA drawdown fund advertising 13.25 per cent ties an evergreen netting 8.64. On committed rather than called capital, 78.7 per cent of the edge vanishes.
The month a remediation trigger has to be armed byMonth 8, on a one-year window and a 14-week hiring lead time. The date is 12W − L/4.33 and holds for any portfolio size — the book only changes the euros.
Two routes to the same NAVFive findings in one quarter-end close, and not one of them was a modelling error. Every one was a control that did not exist.
What a CBAM certificate buffer costs to holdCarry and protection are both linear in the buffer, so the break-even probability is identical at 5 per cent and at 30 — and 2027 costs exactly twice 2026.
What a clawback actually collateralises24 million recovers 13.20 net of tax and 7.20 is escrowed. The rule is e ≥ 1 − t, and every euro won on the tax clause lands uncollateralised.
What a co-investment programme actually saves37 basis points, and a 22.8 per cent total-loss rate erases it. At the usual per-deal cap a single failure is 37 per cent of the annual cohort.
What a diligence exercise actually recoversEighteen basis points is only the part that reaches the yield. Three of the four instruments never do, and the exercise is worth thirty-one.
What a follow-on reserve is actually worth0.019 turns under plain dilution, 0.285 under pay-to-play. The optimum is a property of the shareholders’ agreement, not of the portfolio.
What a lease mark-to-market is actually worth5,788,000 becomes 807,365 once the over-market stream, the expiry dates and the cost of re-letting are priced — and nothing at all below a 43.7 per cent renewal rate.
What a minimum payment actually does£81.53 leaves the account and £20.46 reaches the debt. On minimums alone the set clears in 258 months and repays 1.78 times what was borrowed.
What a month of delay costs in an enforcement463,000 euros of present value a month. No single error about enforcement, and no pair of errors, moves the indifference point from 58.7 cents to the 72 on the table.
What a pro rata cheque actually costsDefending costs 1.25 times the initial cheque across two rounds, not more in each — and below a 521 exit the follow-on dollars come back worth less than they cost.
What a subscription line does to the IRR20 per cent becomes 38.41 on the same asset while the multiple falls. Two dollars of interest buys 18.4 points, and the longer the line runs the cheaper each point gets.
What one point of fees actually costsOne point on the annual charge turns 738,846 into 567,961 over forty years — 23 per cent of the pot, and 2.43 of wealth lost per 1 of fee.
When the promote stops clearingCarried interest is not proportional to performance near the hurdle. It is a step function, and $2m of headroom is what stands between a promote and none.
Why a secondaries bid-ask gap has no zoneThe seller’s floor and the buyer’s ceiling are one formula at two rates. At equal required returns the zone is exactly zero — here it is 11.02 points apart.
Why refining a due diligence rubric makes it weakerThree of twelve managers carry a terminal flaw and the average approves all three. Splitting eight domains into sixteen makes it easier to hide, not harder.
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