How good is a fund, really?
In private equity, fund managers tend to pitch performance like a highlight reel — 25% IRRs, 2.5x TVPIs, vintage top-quartile. But if you’ve ever sat on the LP side of the table (or prepared for an interview as if you had), you know it’s never that simple.
This post walks through how LPs actually evaluate fund performance, beyond the headline metrics.
Core Metrics: What Shows Up in Every LP Memo
- IRR (Internal Rate of Return) – Time-weighted return
- Multiples (TVPI, DPI, RVPI) – Total, realized, and unrealized value vs. capital
- Relative Quartile Performance – Peer ranking by vintage and strategy
- PME (Public Market Equivalent) – Public index comparison benchmark
These metrics form the starting point — but never the full story.
What You Don’t See on the Tear Sheet
Vintage Year: Time Context is Everything
You can’t evaluate a return without knowing when capital was deployed.
The vintage year standardizes this. Most LPs consider the year of first capital call as the true start — that’s when IRR actually starts counting.
Interim vs. Final Returns
A fund’s year-3 performance might look strong, but interim IRRs are volatile and often misleading.
LPs pay closer attention to interim numbers starting around years 5–7 — when distributions kick in and valuations stabilize.
Final performance is what truly matters.
Gross vs. Net: Always Ask What’s Real
LPs focus on net returns — after fees, carry, and expenses.
Gross returns are often presented by early managers or new firms with little track record. That’s fine — but be skeptical of “hypothetical net” figures unless the math is transparent.
Gross vs. Net returns: Fund-level vs. LP-level performance
The Real Question
“My fund has an IRR of 23%. Is that good or bad?”
It depends. Ask:
- Is it gross or net?
- What’s the vintage year?
- What’s the strategy?
Context turns performance data into insight.
Fund Performance Isn’t a Scoreboard — It’s a Narrative
A 20% IRR doesn’t mean much without the “how” and “when.” LPs look beyond the number — they care about how those returns were generated and if they’re repeatable.
💡 Up Next: A deeper dive into IRR, TVPI, and how LPs think about them in real life scenarios.
PE2 Insight 