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Residual Value to Paid-In Capital (RVPI) is a term used to measure the residual value of a private equity fund as a multiple of the capital paid in by the investors. The residual value is the current fair value of all assets held by the fund and the paid-in capital by the investors is the total of all contributed capital up to that time.
By itself, RVPI is a useful measure for investors in gauging the current value of a fund’s assets relative to the initial investment, while also providing a perspective on how much value remains in the fund in relation to distributions the investor may already have received. RVPI can also be combined with the Distributed Value to Paid-in Capital (DPI) to assess the Total Value to Paid-in Capital (TVPI) of the fund.
RVPI will change as the residual assets in the fund are valued each quarter. RVPI is also reduced as assets are realised through exits and capital is distributed to investors. A fund’s RVPI will therefore reduce to zero at the end of the fund’s life.
RVPI represents an important metric for investors in that it provides the residual or unrealised value of a fund’s assets relative to what the investor has contributed.
Private equity funds distribute capital to investors upon exits and exits occur at different times during the life of a fund. As such, an investor’s returns for their initial investment during the life of a fund consist of capital distributed plus the residual value of unrealised assets. RVPI is the way that residual value is typically measured.
Since RVPI is a measure of how much of the investor’s capital remains in the fund, it also provides insight to the investor as to how much risk and opportunity remains in their investment.
The formula for RVPI is as follows:
Where:
The following is an example of a hypothetical PE fund:
Calculating the RVPI for year 4 would produce the following result:
If we calculate the RVPI each year of the fund’s life, we would see the following values (in $ millions):
RVPI measures the residual value of a fund at any particular time during its life. Investors rely on this measure to provide a value for their remaining assets in the fund, which can be added to their existing distributions to provide a total investment return as a multiple of their initial investment.
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¹ Minimum investment may vary by country and local regulation.
² Source: McKinsey "Private Markets Annual Review 2022"
³ Past performance is no guarantee of future returns.
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