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CFA Level I Exam · Alternative Investment Performance and Returns

Private Equity Performance: IRR, TVPI, DPI and RVPI

Updated 7 October 2026 · Fact-checked

Private equity performance is measured with multiples and IRR. DPI is cumulative distributions divided by paid-in capital. RVPI is remaining net asset value divided by paid-in capital. TVPI is DPI plus RVPI. IRR uses dated capital calls, distributions and ending NAV. Divide by paid-in capital, not committed capital.

Understand Private Equity Performance: IRR, TVPI, DPI and RVPI

A private equity fund is usually a limited partnership. The general partner (GP) runs the fund. The limited partners (LPs) supply the money. LPs commit a total amount, but the GP does not take it all on day one. It issues capital calls when it needs cash for deals and fees. Money actually called is paid-in capital (PIC). Money returned to LPs is a distribution.

Because cash moves in and out at times the GP picks, you cannot use a simple holding period return. Two families of measures are used. Multiples (DPI, RVPI, TVPI) show how many units of value you hold per unit of capital paid in. IRR adds the timing of each cash flow. The IRR used for a fund is the since-inception IRR: it treats calls as outflows, distributions as inflows and the current NAV as a final inflow.

The three multiples split value into two parts. DPI is the realized part: cash already back in your hands. RVPI is the unrealized part: the GP's reported NAV of what is still held. TVPI = DPI + RVPI. DPI is hard evidence. RVPI depends on the GP's valuations. Unless a question says otherwise, these figures are net to LPs, meaning after fees and carried interest.

The J-curve is the typical path of fund returns. Early on, IRR is negative. Management fees are charged on committed capital, deal costs hit immediately, and young investments are often carried near cost or written down. Later, investments mature and are sold, so returns rise and cross zero. Plotted over time, the line dips and then climbs, like a J.

A waterfall sets the order in which proceeds are shared. Carried interest is the GP's share of profits, often 20%. A hurdle (preferred return) is a minimum LP return, often 8% a year, before the GP earns carry. A catch-up lets the GP receive extra proceeds after the hurdle until it holds its full share of total profit. In a European (whole-fund) waterfall, LPs get back all paid-in capital plus the hurdle across the whole fund before the GP earns any carry. In an American (deal-by-deal) waterfall, carry can be paid as each deal is realized, so the GP is paid earlier. This raises the risk of overpayment, which a clawback corrects by making the GP return excess carry at the end.

Key formulas to remember

DPI (distributed to paid-in)
DPI = cumulative distributions ÷ cumulative paid-in capital
Realized return multiple. Ignores unrealized value. Uses paid-in capital, not committed capital.
RVPI (residual value to paid-in)
RVPI = NAV of remaining holdings ÷ cumulative paid-in capital
Unrealized multiple. Depends on the GP's valuations.
TVPI (total value to paid-in)
TVPI = (cumulative distributions + NAV) ÷ cumulative paid-in capital = DPI + RVPI
Total value per unit of paid-in capital. It does not consider timing.
Since-inception IRR
0 = Σ CFt ÷ (1 + IRR)^t, with calls negative, distributions positive and final NAV as the last inflow
Rate that sets the present value of net cash flows to zero. Timing matters, unlike the multiples.
Catch-up amount (full catch-up)
Catch-up c solves c = carry% × (preferred return + c)
For 20% carry and a 100% GP catch-up, c = 0.25 × preferred return.
Waterfall order (European)
1) return of paid-in capital, 2) preferred return, 3) GP catch-up, 4) split of the remainder (for example 80/20)
Applied to the whole fund. American waterfalls apply a similar order deal by deal, with a clawback.

How to solve Private Equity Performance: IRR, TVPI, DPI and RVPI questions

Use this order for any private equity performance or waterfall question.

  1. 1Identify what is given: paid-in capital, committed capital, distributions, NAV, fees and the waterfall terms. Mark which figure is committed and which is paid in.
  2. 2Check whether the question asks for a realized measure (DPI), an unrealized measure (RVPI), a total measure (TVPI) or a timing-based measure (IRR).
  3. 3For multiples, divide by cumulative paid-in capital. Compute DPI and RVPI first, then add them to get TVPI.
  4. 4For IRR, list the cash flows by period with signs: calls negative, distributions positive, final NAV positive in the last period. On the TI BA II Plus press CF, enter CF0, then use C01 and F01 for each later flow, then IRR and CPT. Clear first with 2ND CLR WORK.
  5. 5For a waterfall, apply the tiers in order: capital back, preferred return, catch-up, then the split. Stop when the proceeds run out.
  6. 6For American versus European questions, ask who is paid first. American pays carry earlier on individual deals and needs a clawback. European pays the GP only after the whole fund returns capital plus the hurdle.
  7. 7Sanity check: TVPI must be at least DPI, and TVPI = DPI + RVPI. Choose the option that passes these tests.

Quickest way: Multiples shortcut: divide and add

When to use it: Use it whenever the stem gives distributions, NAV and paid-in capital and asks for DPI, RVPI or TVPI.

  1. Write PIC, distributions and NAV on scratch paper.
  2. DPI = distributions ÷ PIC. RVPI = NAV ÷ PIC.
  3. TVPI = DPI + RVPI. Do not divide again.
  4. Eliminate options that use committed capital or NAV as the denominator, and options where TVPI is below DPI.
  5. For waterfall questions, calculate the GP carry directly: with a full catch-up and enough proceeds, GP carry equals carry % × total profit.

Common mistakes in Private Equity Performance: IRR, TVPI, DPI and RVPI

  • Dividing by committed capital instead of paid-in capital

    Both numbers appear in the stem and the word 'capital' looks the same.

    Fix: All three multiples use cumulative paid-in capital in the denominator. Committed capital is only the promise.

  • Treating TVPI as realized performance

    A high TVPI feels like cash earned.

    Fix: TVPI includes unrealized NAV set by the GP. Only DPI measures cash already returned.

  • Thinking IRR is high or low only because of fund quality, ignoring the J-curve

    Students compare a young fund with a mature one.

    Fix: Early IRR is usually negative because of fees on committed capital, costs and conservative valuations. Compare funds of similar age.

  • Mixing up European and American waterfalls

    The names give no hint about the mechanics.

    Fix: European means whole-fund: LPs first get all capital plus hurdle. American means deal-by-deal: the GP can earn carry earlier, so a clawback matters.

  • Taking carry as 20% of all proceeds

    Carry is quoted as a percentage and the base is forgotten.

    Fix: Carry applies to profit, not to returned capital. Start with proceeds minus paid-in capital.

  • Skipping the catch-up or computing it as 20% of the hurdle amount

    The circular definition looks confusing.

    Fix: With a full catch-up, the GP receives 100% until it holds 20% of profits distributed so far. Solve c = 0.2 × (hurdle + c), so c = 0.25 × hurdle.

Worked examples

Example 1

A private equity fund has called cumulative paid-in capital of $80 million. It has distributed $36 million to LPs and reports a remaining NAV of $68 million. The fund's TVPI is closest to: A) 0.85x, B) 1.30x, C) 1.53x

Show the solution
  1. DPI = 36 ÷ 80 = 0.45.
  2. RVPI = 68 ÷ 80 = 0.85.
  3. TVPI = DPI + RVPI = 0.45 + 0.85 = 1.30.
  4. Check: (36 + 68) ÷ 80 = 104 ÷ 80 = 1.30.
  5. Option A is RVPI only. Option C divides total value by NAV (104 ÷ 68), which is the wrong denominator.

Answer: B) 1.30x

Example 2

A fund with a European waterfall has paid-in capital of $100 million and is fully liquidated with $160 million of proceeds. The terms: return of paid-in capital, then a preferred return to LPs of $30 million in total, then a 100% GP catch-up until the GP has 20% of profits distributed, then an 80/20 split. The GP's carried interest is closest to: A) $6.0 million, B) $12.0 million, C) $32.0 million

Show the solution
  1. Total profit = 160 − 100 = $60 million.
  2. Tier 1: LPs receive $100 million of capital. $60 million remains.
  3. Tier 2: LPs receive the $30 million preferred return. $30 million remains.
  4. Tier 3: catch-up c = 0.2 × (30 + c), so 0.8c = 6 and c = $7.5 million to the GP. $22.5 million remains.
  5. Tier 4: remaining $22.5 million splits 80/20. GP gets $4.5 million and LPs get $18 million.
  6. GP carry = 7.5 + 4.5 = $12.0 million, which equals 20% of the $60 million profit.
  7. Option A is 20% of only the $30 million above the hurdle. Option C is 20% of total proceeds, which wrongly includes returned capital.

Answer: B) $12.0 million

Exam tips

  • Questions are standalone three-option items, so first decide which measure is asked. Many wrong options are the other multiples (DPI or RVPI) computed correctly.
  • Memorize TVPI = DPI + RVPI. It lets you check or find an answer in seconds.
  • For concept questions, remember: DPI is realized, RVPI is unrealized and depends on GP valuation, and neither considers timing. Only IRR does.
  • A J-curve stem usually names negative early returns. Link it to fees on committed capital, early costs and valuations at or below cost.
  • In waterfall questions, always compute profit first and apply tiers in order. Numerical options are in ascending order, so one distractor is usually a percentage of the wrong base.

Practice questions from Alternative Investment Performance and Returns

Private Equity Performance: IRR, TVPI, DPI and RVPI in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Private Equity Performance: IRR, TVPI, DPI and RVPI: frequently asked questions

What is the difference between DPI, RVPI and TVPI?

DPI is cash returned to LPs divided by paid-in capital, so it is realized. RVPI is the remaining NAV divided by paid-in capital, so it is unrealized. TVPI is the sum of the two.

Why is private equity IRR negative in the early years?

This is the J-curve. Management fees are charged on committed capital and deal costs arise at the start. Investments are held near cost or written down before value is created. Returns rise as portfolio companies mature and are sold.

How does a European waterfall differ from an American waterfall?

A European (whole-fund) waterfall pays the GP carry only after LPs receive all paid-in capital plus the preferred return. An American (deal-by-deal) waterfall can pay carry on each realized deal, so a clawback may be needed to correct overpayment.

Why can a fund have a high TVPI but a low DPI?

Most of its value is still unrealized NAV, which the GP estimates. Until investments are sold and cash is distributed, the value is not proven. This is common in younger funds.