For years, private markets celebrated a single number above all: IRR or Internal Rate of Return.
The IRR was elegant, powerful, and easy to sell, a crisp figure that captured the speed and scale of value creation. High IRRs became the mark of good investing.
Or at least, that’s how the story was told.
But as private markets have matured, and capital cycles have shifted, something subtler and more important has come to the surface:
IRR tells you what could be.
DPI or Distributions to Paid-In Capital tells you what is.
In first principles terms, IRR is a theory of success.
DPI is proof.
And the best managers today are the ones who understand the difference.
When you strip it down, both IRR and DPI matter.
Neither is “better” or “worse.” They are just different ways of measuring progress at different moments in a fund’s life.
A strong IRR early in a fund’s cycle signals portfolio momentum: assets are growing, valuations are rising, the thesis is playing out.
But momentum isn’t money.
DPI, on the other hand, is brutally real. It measures how much cash has been returned to investors, relative to what they paid in.
You can’t fake DPI. You can’t mark it up. You either distributed capital or you didn’t.
In the early years of a fund, IRR is the language of possibility.
As time passes, DPI becomes the language of trust.
India’s private markets are now reaching that critical point.
For the last decade, the ecosystem rewarded paper markups and narrative building. Growth was the story, and to be fair, it had to be. The system needed ambition more than it needed cash flow.
But that phase is ending.
Investors today – LPs, wealth managers, even founders are asking harder questions:
Where are the exits?
Where is the realized value?
Where is the liquidity that allows the cycle to continue?
It’s not cynicism. It’s maturity.
The same pattern played out globally. IRR dominated the early years of private markets’ rise. But as LPs grew more sophisticated, and as exit environments developed, DPI became the currency that really mattered.
Realized distributions, not notional IRR became the proof point for quality.
India’s cycle will be faster. Our venture and growth portfolios are maturing within a compressed timeline, and the demand for liquidity is rising.
Secondaries, continuation funds, structured exits – all these innovations are a direct response to the same underlying need: the system must prove it can return cash, not just raise it.
A good private market fund today is not the one that shows the highest IRR on a pitch deck.
It’s the one that shows real DPI at the right stages, without giving up the potential for long-term value creation.
It’s the one that knows when to hold, and when to exit.
When to believe in growth, and when to deliver returns.
When to prioritize patience, and when to prioritize liquidity.
Good private market investing today is the art of balancing aspiration with accountability.
It’s no longer enough to promise returns. You have to prove them.
And in a maturing market like India, the managers who internalize this shift early will be the ones LPs stay with not just for one fund cycle, but for decades.
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