The relevant measure of cash flows for the limited partners (LPs), and the LPs’ realized return from investment in the private equity fund, respectively, is:
Net IRR measures the cash flows between the fund and the limited partners and is therefore the relevant return metric for the LPs. Distributed to paid-in capital (DPI) measures the LPs’ realized return from investment in the fund. It is calculated as the cumulative distributions already paid to the LPs over the cumulative invested capital.
Gross IRR measures the cash flows between the fund and the portfolio companies. Residual value to paid-in capital (RVPI) measures the LPs’ unrealized return from the fund. Paid-in capital measures the percent of capital used by the general partner.
