Evaluating performance is an imperfect science: every metric has its pros and cons. Moving the goalposts, however, is rarely a sign that the game is going well. Look no further than the private equity industry, where DPI is the new IRR.
On the face of it, shifting focus towards distributions to paid-in capital over internal rates of return is bewildering given how poorly the industry is doing on both.
Private equity’s annualised IRR fell below 10 per cent in the year to March 2024, says PitchBook. That is far below the 25 per cent the industry used to aim for, and even below a rough benchmark for the cost of equity. Over the same — admittedly stonking — period, an unleveraged investment in the S&P 500 would have returned 30 per cent.