How we assess fund investments: MoIC and DPI - Blue Future Partners (2024)

FAQs

How we assess fund investments: MoIC and DPI - Blue Future Partners? ›

Multiple on Invested Capital (MoIC) is calculated by dividing the fund's cumulative realized and unrealized value by the total dollar amount of capital invested by the fund. Distribution to Paid-In Capital (DPI) is a measure of the cumulative investment returned to the investor relative to paid-in capital.

Is DPI the same as MOIC? No, MOIC is the Multiple on Invested Capital and consists of both realised and unrealised value. It is also usually a gross figure that does not consider fees. DPI represents only realised value and is net of fees.

MOIC = Total Value / Invested Capital

The “Total Value” in this equation represents the sum of all cash inflows, including profits and distributions, generated from the investment portfolio.

MOIC tells you how the value of an investment has grown on an absolute basis, while an IRR tells you how that investment has generated returns on an annualized basis. A 2.0x MOIC over 3 years reflects an attractive annual return, equating to an IRR of c. 26%, while the same MOIC over 5 years equates to an IRR of c.

Private equity performance measurement

There are multiple standard metrics used to measure returns in private equity, such as the internal rate of return (IRR), the multiple (also known as Multiple on Invested Capital [MOIC] or Total Value to Paid In [TVPI]), and the Distributed Capital to Paid-in Capital ratio (DPI).

The net DPI is calculated by deducting the management fees to date from the cumulative distributions and then dividing that amount by the paid-in capital. Therefore, the net DPI comes out to approximately 2.0x.

People regularly discuss digital images in terms of DPI, which stands for Dots Per Inch. The DPI of a digital image is calculated by dividing the total number of dots wide by the total number of inches wide OR by calculating the total number of dots high by the total number of inches high.

MOIC essentially quantifies how much an investor has made back relative to the original investment. For example, a MOIC of 3x would indicate that the investor has tripled their initial investment.

Calculation performed by adding the reported value and the distributions received and subsequently dividing that amount by the total capital contributed.

The formula for Distributed to Paid-In Capital (DPI) is as follows: DPI = Total Distributions to Investors / Total Paid-In Capital. DPI measures the ratio of cash distributions that investors have received from a venture capital or private equity fund to the total capital they initially invested in the fund.

What is Moic rule of 72? ›

It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

High MOIC: Investors look for a high MOIC as that would result in a higher return on investment. A good MOIC might sit between the range of 2x and 3x, but standards will vary by asset and industry standards.

In simple terms, MOIC helps you understand how much money you've made compared to how much money you put in. This metric gives investors an idea of their return on investment (ROI), which is essential for making informed decisions about where to allocate resources.

DPI: The distribution to paid-in capital (DPI) measures the ratio of cash distributions investors receive to the total capital invested in a private equity fund. It is calculated by dividing the total cash distributions by the total capital contributed by investors.

To evaluate the performance of a fund manager for a five-year period using annual intervals would also require examining the fund's annual returns minus the risk-free return for each year and relating it to the annual return on the market portfolio minus the same risk-free rate.

Distributed to Paid-In (DPI) measures the amount of capital distributed back to investors (LPs) relative to the total money contributed to give insight into the liquidity and realization of returns generated by the VC fund. VC firms calculate DPI as follows: DPI = (Total Distributions to LPs) / (Total Capital Called)

A DPI value greater than 1 indicates that investors have received back more capital than they initially invested, signifying a positive return. A DPI value less than one means that investors have not yet received back their initial capital.

In essence, while DPI provides a snapshot of the actual returns to investors, IRR offers a forecasted rate of return based on all expected cash flows. A high IRR projection might attract investors, but a strong DPI is crucial for demonstrating actual performance and investor satisfaction.

What is the Distributions to Paid In Capital Ratio? The Distributions to Paid In Capital ratio (or DPI) represents the cumulative distributions paid by a private equity fund to its limited partners, relative to the amount the partners have invested. DPI is also sometimes known as the realization multiple.