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Why One Number Is No Longer Enough
Private funds have no S&P 500. There is no continuously priced, universally accepted benchmark for a buyout fund, venture portfolio, or credit vehicle. Cash flows are irregular, fund lives often extend beyond a decade, interim valuations are subjective, and even funds raised in the same year may deploy capital at different times and into different market conditions. A single net IRR, however strong, cannot capture all of that.
That gap is why institutional investors increasingly evaluate private funds through multiple lenses rather than relying on headline IRR alone. Allocators examine how quickly capital is returned, how much total value the fund has created, how much has actually been realized, and how the fund performed against both its peers and a public-market alternative.
The Core Performance Measures
Institutional investors typically begin with four complementary measures of private fund performance. Net IRR is the annualized return after fees and carried interest, reflecting the timing of contributions and distributions. TVPI divides the fund’s total realized and unrealized value by contributed capital. DPI divides cash already returned to investors by contributed capital, while RVPI divides the estimated value of investments still held by contributed capital. Together, the two multiples make up the fund’s total value: TVPI equals DPI plus RVPI.
These measures only tell the full story when considered together. IRR captures annualized performance and the timing of cash flows, TVPI measures the fund’s current total value relative to contributed capital, and DPI shows how much capital has actually been returned to investors. A fund with a strong TVPI built mostly on RVPI deserves closer scrutiny because unrealized valuations can change before an asset is sold. Yet even a complete set of performance measures needs context, making the selection of an appropriate comparison group the next critical step.
Building the Right Comparison Group
Return figures mean little without an appropriate benchmark. Institutional investors match funds against peers based on vintage year, asset class and strategy, geography, fund size, and investment stage. Vintage-year normalization is especially important. A 2018 North American buyout fund invested through a different interest-rate environment, exit market, and valuation cycle than a fund raised in 2022. It should therefore be compared with other 2018-vintage buyout funds, not with a recent venture fund or a mature private-credit vehicle.
Benchmark providers report medians and quartiles for each cohort. A top-quartile designation only becomes meaningful when the benchmark provider and comparison universe behind it are clearly identified. Once the appropriate cohort is established, allocators can look beyond headline performance to evaluate the quality, realization, and sources of a fund’s returns.
Looking Beyond IRR
As the limitations of relying on IRR alone have become clearer, institutional investors have placed greater emphasis on the realization and source of reported returns. DPI has become particularly important because it measures cash already returned rather than the estimated value of investments still held. DPI has not replaced IRR; instead, allocators use the two together to distinguish strong reported performance from value that has actually produced liquidity.
Peer comparisons provide another important perspective, but institutional investors may also want to know whether a private fund justified its illiquidity relative to public markets. Public Market Equivalent methodologies apply the fund’s actual cash-flow timing to a public index, helping investors assess whether it outperformed a liquid alternative over the same period. Kaplan-Schoar PME and direct alpha are two commonly used approaches, although their calculations and interpretations differ.
Allocators then examine how those returns were generated. Performance attribution can separate value created through operating growth from returns driven by leverage, multiple expansion, sector exposure, or subscription credit lines. Continuation vehicles have introduced another layer of scrutiny because they can provide liquidity while extending holding periods and raising questions about valuations and potential conflicts of interest.
What Allocators Ultimately Look For
Taken together, these measures help allocators determine whether performance is attractive, repeatable, and supported by realized results. They look for consistency across multiple vintage years, transparent valuation practices, clear performance attribution, and outperformance against relevant peers and public markets. The central question is not simply whether a fund generated a strong return, but how that return was created, how much has been realized, and whether it exceeded an appropriate alternative.
Presenting Performance with Context
For fund managers, the implication is straightforward: present net IRR, TVPI, DPI, and RVPI together, identify the benchmark provider and peer group behind any quartile claim, and distinguish realized value from unrealized value. With more than 14,000 private-market performance records, Dakota Marketplace enables institutional investors to compare these measures across asset classes, vintage years, and reporting periods.
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