Abstract
In this paper, we elaborate on the particular challenges in understanding and measuring private equity performance. We examine commonly used measures including IRR (internal rate of return), the cash and value multiple, including TVPI (Total Value to Paid-in or Total Value Multiple), DVPI (Distributed Value to Paid-in), RVPI (Residual value to paid-in) and discuss their limitations in assessing true performance. We also explore the Modified IRR (MIRR), which despite not being in wide use, is a suggested complement to conventional IRR. We also propose t various approaches to combining these measures to arrive at a less ambiguous way of analyzing performance. Investors aware of these key concepts and tradeoffs will be in a better position to make appropriate choices and realize the full return potential of the private equity asset class.
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