What is Distribution to Paid-In Capital?
Distribution to Paid-In Capital (DPI) measures the cumulative proceeds returned by a fund to its investors relative to its paid-in capital.
How to Calculate Distribution to Paid-In Capital (Step-by-Step)
The distribution to paid-in capital metric measures the realized profits that have been distributed by the fund back to their limited partners (LPs), i.e. the investor base.
From the perspective of the investor, the metric answers:
- “Given the fund’s called paid-in capital, how much in profits have been realized so far?”
Conceptually, DPI represents the amount actually realized and paid back to investors, so the metric portrays the real profits to date earned by the fund’s limited partners (LPs).
The DPI multiple represents the ratio between the 1) fund’s realized distributions and 2) the paid-in capital of the limited partners (LPs).
- Cumulative Distributions → The total capital returned to LPs (i.e. the realized profits)
- Paid-In Capital → The committed capital from LPs that have been “called” by the investment fund
Distribution to Paid-In Capital Formula (DPI)
Calculating the DPI is straightforward, as it involves dividing the realized profits by the capital paid-in by investors.
The paid-in capital represents the capital contributed by LPs to the fund that has been “called” by the firm in order to invest it.
The important distinction here is that GPs must make a capital call to the LPs to request access to the committed capital, meaning that paid-in capital is usually NOT equal to the total committed capital amount.
DPI vs. TVPI Multiple: What is the Difference?
Unlike the total value to paid-in capital (TVPI), the DPI is not inclusive of any residual fund value, i.e. the “paper gains” from investments not yet realized.
At the end of the day, the DPI takes precedence over the TVPI as the fund’s life cycle reaches its later stages and the percentage of committed but uncalled capital remaining is close to zero.
The returns realized once the fund exits investments are true returns, rather than unrealized returns the funds may anticipate on a future exit date.
Hypothetically, if a fund has yet to exit a single investment – neither a full nor partial exit – the DPI amounts to zero.