Permian | Performance Measures and Ratios
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Performance Measures and Ratios

PERFORMANCE MEASURES AND RATIOS

These terms are explained from a general financial point of view, but also with a more particular relationship to the private equity fund industry.

Cash on Cash Multiple

In a private equity setting, a “cash on cash” multiple is from the investors point of view the amount of cash they have received- plus the remaining value of the fund, divided by the amount of cash they have paid into the fund. Cash received 50 and remaining value 70, cash paid inn 100, will give a CoC multiple expressed as 1.2x. One would expect that the ratio would equal the TVPI multiple (capital distributions + remaining value in the fund/capital called, see TVPI), but this will not be the case if the fund is netting calls and distributions. If so, the amount stated as capital called will not equal the amount the investor has paid from his bank account, ditto for distributions (see Recallable Distributions).

 

Unlike IRR, multiples are performance measures which do not include a time element in the calculation. They are relatively unsophisticated measures, but they easy to understand and calculate and they are widely used in the private equity industry (eg. CoC, DPI, TVPI, RVPI).

DPI - Distributions to Paid-in Capital

The DPI multiple refers to the cumulative amount a fund has distributed to its investors relative to the total capital contributions the investors have made to the fund. DPI is net of fees and carried interest, and investors’ focus on this measure is understandable as they anticipate return of and return on investments.

 

Unlike IRR, multiples are performance measures which does not include a time element in the calculation. They are relatively unsophisticated measures, but they easy to understand and calculate and they are widely used in the private equity industry (eg. CoC, DPI, TVPI, RVPI).

FMV - Fair Market Value

FMV refers to the price a given asset would fetch in the marketplace, assuming a knowledgeable and willing buyer and seller and no particular outside pressures to make a transaction, eg. regulative pressures or financially stressed seller. A reasonable period of time must be given for the transaction to be completed.

 

An estimate of FMV is subjective in so far as it will be influenced by time and place, comparable transactions and the evaluation principles used.

 

In private equity, the term normally refers to the value of the fund’s investments without considering other assets and liabilities of the fund. (See NAV).

IRR - Internal Rate of Return

Funds normally show both gross and net IRR.

 

Gross IRR is the total annual rate of return on an investment before the deduction of fees, carried interest and expenses of operating the fund itself. It is a measure for the return on the portfolio investments.

 

Net IRR is the same calculation but including fees, carried interest and operating expenses of the fund. Clearly, for the investors the net IRR is the important measure.

 

Unlike multiples, the internal rate of return includes the time element in the calculation. All other parameters being equal, i.e. same purchase- and sales price and costs unchanged, the measure will be reduced over time.

NAV - Net Asset Value

The Net Asset Value of a fund is the total value of all assets less liabilities. In private equity, the measure NAV refers to the value of the fund as a whole (see FMV).

PICC - Paid In to Committed Capital

The ratio of contributions to date compared to total Committed Capital.

RVPI - Residual Value to Paid in

RVPI is a measure for the current value of all remaining holdings within the fund compared to the total amount contributed to date by the investors. Any reinvested capital should be included in the denominator of this ratio.

 

Unlike IRR, multiples are performance measures which do not include a time element in the calculation. They are relatively unsophisticated measures, but they easy to understand and calculate and they are widely used in the private equity industry (eg. CoC, DPI, TVPI, RVPI).

TVPI - Total Value to Paid-in

TVPI is the ratio of the value of remaining investments and other assets within a fund (NAV) and the total value of all distributions to date, relative to the total amount of capital paid into the fund to date. Any Recallable Distribution should be included in the numerator of this ratio, and any reinvested capital should be included in the denominator. TVPI = RVPI + DPI.

 

Unlike IRR, multiples are performance measures which do not include a time element in the calculation. They are relatively unsophisticated measures, but they easy to understand and calculate and they are widely used in the private equity industry (eg. CoC, DPI, TVPI, RVPI).