DPI is Taking Over as the Ultimate Private Market Metric

Investors in India’s private markets have traditionally focused on internal rate of return when evaluating the performance of alternative investment funds. But as private equity and venture capital investing matures, another metric is gaining prominence—distributions to paid-in capital, or DPI. Unlike internal rate of return, which includes unrealized gains, DPI measures actual returns to investors by comparing the total cash distributions made by a fund against the capital originally committed by investors.

This shift toward DPI reflects a larger evolution in India’s private investment landscape. As more funds reach the later stages of their lifecycle, the focus is increasingly on delivering realized returns rather than speculative growth. Investors, particularly institutional ones, now prefer funds with strong DPI ratios, as they provide tangible proof that a fund manager can successfully exit investments and return capital. According to recent data, over 80 percent of funds analyzed in the Crisil-Oister study had returned at least some capital to investors by 2024. Among these, 25 funds had achieved a DPI greater than one, meaning they had fully repaid investors’ capital and then some.

A significant driver behind this trend has been India’s expanding market for exits. Over the past few years, initial public offerings have surged, with fiscal year 2024 alone recording 210 listings—more than the combined total from the previous two years. This has provided fund managers with better liquidity options, allowing them to distribute capital back to investors more efficiently. The growing presence of strategic acquisitions and secondary sales has further contributed to improving DPI across multiple funds.

Late-stage investments are also playing a crucial role in boosting DPI. With late-stage deals now making up nearly 40 percent of total private equity investments, fund managers are increasingly backing companies that already have established revenue streams and clearer paths to exit. These companies are less reliant on speculative growth and more likely to generate returns that can be distributed to investors within a reasonable timeframe.

However, despite the growing importance of DPI, it does not come without challenges. The long investment horizons typical of private market funds mean that DPI often takes time to materialize. Most funds have a lifecycle of 8 to 10 years, meaning early-stage funds often have lower DPI for much of their existence. Additionally, macroeconomic conditions such as rising interest rates or geopolitical uncertainties can delay exits, making it difficult for funds to maintain a consistent DPI trajectory.

Another critical factor influencing DPI is the increasing involvement of institutional investors such as pension funds and sovereign wealth funds. These investors typically have lower risk tolerance and prioritize funds that can offer regular distributions rather than waiting for a large payout at the end of a fund’s life cycle. As a result, fund managers are adjusting their strategies, structuring deals with partial exits and prioritizing companies with higher dividend potential.

Regulatory changes could also impact DPI calculations in the coming years. As India’s Securities and Exchange Board continues to refine rules governing alternative investment funds, stricter reporting requirements and standardized benchmarks may lead to greater scrutiny of fund performance. This could further solidify DPI’s role as a key indicator of a fund’s health and success.
While DPI is not the only measure of a fund’s success, its rising importance marks a turning point in India’s private markets. Investors are no longer just looking for paper gains—they want tangible, realized returns. For fund managers, maintaining a strong DPI will be a critical factor in attracting capital and building long-term trust with investors.

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