Distributed to Paid-In Capital (DPI)

Key Takeaways

• DPI is a measure of the cumulative value of distributions paid to the investors in a private equity fund relative to the money invested (i.e. cash-on-cash).
• DPI is expressed as a multiple of investors’ paid-in investment capital.
• DPI adds to RVPI to determine the Total Value to Paid-in Capital (TVPI) of the fund.

What is Distributed to Paid-In Capital (DPI)?

Distributed to Paid-In Capital (DPI) is a term used to measure the total capital that a private equity fund has returned thus far to its investors. It is also referred to as the realisation multiple. The DPI value is the cumulative value of all investor distributions expressed as a multiple of all the capital paid into the fund up to that time.

DPI is one of the two components of Total Value to Paid-in Capital (TVPI), a widely used measure of the total performance of a private equity fund at any specified time. The other component of TVPI is Residual Value to Paid-in Capital (RVPI). RVPI represents the net asset value of a fund’s remaining (unrealised) assets and DPI represents the cash-on-cash value of distributions (realised). The sum of RVPI and DPI equals TVPI.  

DPI increases as exits are achieved and capital is distributed to investors. Once all distributions are made, the DPI becomes equal to the TVPI of a fund.

The value of distributions used to determine DPI is the actual cash value paid to investors. No consideration is made for taxes, inflation, or reinvestment.

DPI in private equity: Why is it important?

Private equity funds distribute capital to investors as exits occur and holdings are liquidated, which occurs at various times during the life of a fund. As such, an investor’s returns on their initial investment at any point during the fund’s life consist of capital the fund has distributed plus the residual value of remaining unrealised assets. DPI represents the capital returned to investors from the fund at any point in time.

DPI is important to investors because it represents actual returns of capital, net of fees and expenses. Once all holdings of a fund have been liquidated and proceeds are distributed to the investors, the total distributions will represent the investor’s total value received on their investment. DPI is a way to measure interim progress during the life of the fund toward the total return as well as the fund manager’s success at returning capital to investors.

DPI is expected to be zero for the first few years of most funds and DPI relative to other funds of the same vintage will vary significantly based on overall underlying managers’ portfolio concentration decisions (e.g., capital concentration on “winners”, number of assets), the asset class (e.g., venture capital funds tend to have longer lead times to mature DPIs, as assets are acquired earlier in the life-cycle) and preferred exit routes (e.g., IPO windows vs strategic sales).

What is a good DPI in private equity?

DPIs will vary extensively for different types of funds as well as during a fund’s life. What constitutes a “good” DPI will also depend on market conditions. At the end of a fund’s life, investors will certainly want to see a DPI in excess of 1.0, with levels above 1.5 generally considered good.

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.

Pros and Cons of DPI

Pros

• Easy to obtain, calculate and understand.
• Widely used, along with RVPI, to determine a fund’s total investment multiple to investors.
• Provides a measure of a fund’s realised value.
• Is a measure of the fund’s liquidity.
• Can provide a benchmark for comparing the effectiveness of funds or managers in  returning capital to investors.

Cons

• Does not consider inflation, time value of money or reinvestment.
• Does not consider remaining unrealised value (though is commonly used along with RVPI for that purpose)

DPI Formula and Calculation

The formula for DPI is as follows:

Where:

• Distributed Capital is the total of all distributions by the fund to date.‍
• Paid-in Capital represents the total capital contributed to the fund by the investors.

How to calculate DPI: An example

The following is an example of a hypothetical PE fund:

• It is 4 years since the fund opened and investors have contributed a total of $50 million.
• The fund has distributed $12 million to investors from realised deals.

 Calculating the DPI for year 4 would produce the following result:

This ratio tells us that as of the end of the fourth year, the fund has returned 24 percent of the capital investors have paid in so far.

At the end of the fund’s life, all of the year-end DPIs could be shown as follows (in $ millions):

Investors rely on DPI to measure the cumulative distributions from a private equity fund relative to their initial investment at any point during the fund’s life. This enables them to gauge how effective the fund’s manager is at returning investor capital and providing partial liquidity on their investment.

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