Fast reading
- In an era of higher interest rates, it has become increasingly difficult for general partners (GPs) to exit companies they bought during the bull market. Return estimates for PE portfolios have traditionally included the value of investments in companies that haven’t yet been sold or exited. These are typically evaluated using metrics such as the internal rate of return (IRR).
- When Limited Partners (LPs) are evaluating performance, they increasingly want to know whether these assets can be realised at the valuation they are currently held at. But this is a question that IRR cannot answer. As a result, the distribution to paid-in capital (DPI) ratio – which measures actual cash returns relative to the invested capital – has become an increasingly significant metric for investors.
Federated Hermes Private Equity report on IRR vs DPI
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