When we last wrote about the importance of DPI in 2022, we stated that this was becoming the most important metric for LPs assessing Fund performance. That importance has accelerated, with McKinsey’s 2025 Global Private Markets Report finding that 2.5x as many investors ranked DPI as their “most critical” performance metric compared to just three years prior. Jeremy Lytle breaks down why it’s so important in the current market:
The widening gap between TVPI and DPI
Distribution to Paid-In Capital (DPI) is one of the clearest measures of a private equity fund’s actual performance. It is the ratio of capital a fund has returned to its investors against the total capital called i.e. once DPI passes 1.0x, every pound put in has been paid back. It is often discussed alongside Total Value to Paid-In Capital (TVPI), which takes into account the value of unrealised holdings. The distinction is important as TVPI reflects what a manager believes their portfolio is worth; DPI reflects what they have actually delivered. The wider the gap between those two figures, the greater the problem for LPs who have value on paper but none of the certainty of it being delivered.
The latest UK Private Capital Performance Measurement Survey shows the gap between TVPI and DPI is accelerating. This means LPs are holding more risk in undelivered valuations.
The cause for that gap is broadly Covid vintage funds. Significant capital was deployed at peak valuations, and many of those assets are now marked at book values that the exit market is unlikely to validate. GPs who deployed aggressively in that period are, in effect, stuck, as they are unwilling to crystallise losses by selling, but unable to demonstrate realised returns by holding. This is a significant issue in the market, albeit ECI’s focus on vintage diversification and deploying funds over a 4 year period means only 6% of the unrealised portfolio is from that peak 2021 period (one investment, Avantia, which is delivering 22% revenue growth and 42% EBITDA growth).
The exit market has not yet rejuvenated
Despite expectations that 2026 would see an uptick in exit activity, it looks set to be another year of many investors pushing out realisations. For many exits, that is due to valuations still not being strong enough, as referenced above. For IPOs, geopolitical instability and the more cautious mood music on software valuations mean that planned listings are being deferred, creating a dampening effect on the large-cap market. For larger-cap Funds, or those holding a few outperforming larger assets, it is this lack of exit routes that is having such a knock-on effect on DPI.
That doesn’t mean there aren’t deals to do. Processes that would once have been competitive auctions are increasingly pivoting towards more discrete bilateral conversations, as selling funds are wary of tarnishing assets through failed sales processes in this unpredictable environment. Five of ECI’s ten investments in ECI 12 have been off-market, creating opportunities to spend more time with Founders and management ahead of an investment and ensure deep alignment.
Synthetic DPI is not the answer
Faced with this pressure, some GPs have turned to fund-level NAV facilities – borrowing against the fund to distribute cash to LPs without selling assets. This solves a short-term problem, but LPs don’t always view this favourably, as it comes with a cost and doesn’t actually deliver on the realisation of an asset. Distributions funded by leverage rather than actual realisations can be viewed as kicking the can down the road.
Continuation vehicles sit in a more nuanced place. Where CVs are used highly selectively, for premium assets and where management and investors are aligned, LPs generally are on board. But the credibility of that can be diluted if it happens too often. It gets harder to state that this asset is a ‘once in a decade’ opportunity if you said the same thing about a different business only the year before.
What is the impact on the market?
The hunt for DPI is reshaping the industry in three ways. The first is fundraising. Firms unable to sell assets except at a discount are caught in a bind: hold, and their DPI stays too low to raise a new fund; sell, and their realised performance might be too weak. Many funds are pausing their plans, and the effect compounds, as slower DPI makes LPs more capital-constrained.
The second impact of the hunt for DPI is on potential value creation. Because Funds can’t exit, their teams are stretched more thinly across multiple assets. At ECI, we’ve always believed that a focused single strategy, a disciplined deployment pace and a structured portfolio monitoring process are the foundations of a consistent DPI.
ECI has a relatively small portfolio of 15 unrealised companies, compared to a team of 52 people, which means we can be more focused on managing risk and value creation opportunities. Our recent funds reflect that approach. Our 2015 vintage stands at 2.5x DPI, and our 2018 vintage has already passed 1.1x, materially ahead of relevant market benchmarks.
A third impact is that there has been more of an interest from investors in the mid-market, because of the range of multiple exit routes, including larger financial sponsors, strategic trade exits and less commonly CVs or IPO exit routes.
For the private equity industry to continue to thrive, exit activity and the recycling of capital is of paramount importance. Current market dynamics suggest the gap is likely to continue to widen this calendar year before we see a return to strong DPI performance across the market.
If you’d like to discuss DPI or any of the themes raised here, please get in touch.
