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CFA Level I · CFA Level I Exam · Alternative Investment Performance and Returns

A limited partner reviewing a young private equity fund in its fourth year observes a TVPI of 1.30 and a DPI of 0.10. The most appropriate conclusion is that:

With TVPI of 1.30 and DPI of 0.10, RVPI is 1.20, so most value is still unrealized. The multiple therefore depends on the manager's interim valuations, and little capital has actually been returned in cash to the investors.

  1. Amost of the reported value is unrealized and depends on the manager's valuationsCorrect
  2. Bthe fund has already returned most of the invested capital to investors
  3. Cthe fund's IRR must be lower than its TVPI implies

Explanation

RVPI = TVPI - DPI = 1.30 - 0.10 = 1.20, so about 92% of total value is unrealized. The reported figures therefore rest on interim valuations. A DPI of 0.10 means little capital has been returned, and IRR cannot be inferred to be lower from TVPI alone.

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