Investment diversification matters more than ever to counter market volatility. Since the turn of the millennium, investors have increasingly diversified their portfolios through private equity (PE), transforming from a niche alternative investment to a dominant growth driver.
According to PitchBook data, PE assets under management swelled from $700 billion in 2005 to nearly $6 trillion in 2025. In the US, PE-backed businesses have exploded from 2,000 to over 11,500, even as publicly listed firms fell from 7,000 to 4,500, according to Citizens Bank.
PE has grown as an asset class across pension schemes, sovereign wealth funds and HNW investors. As its scale and influence increase, so too has the complexity of evaluating performance, especially given the unique structure of PE investments. Investors need reporting that accurately captures the investment performance of both the general and limited partners, across which fund expenses and distributions are allocated.
Private Equity Performance Metrics: IRR Takes the Lead
For most investment portfolios and asset classes, the traditional approach to measuring performance has been to use the time-weighted rate of return, the original Dietz formula, to capture capital flows in and out of a portfolio. Over time, this developed into the Modified Dietz formula, where the timing of cash flows is taken into consideration, and more commonly today, the use of daily return calculations. The underlying premise of these calculations is that the investment manager has no control over the timing of a cash flow. Therefore, any flow impact must be minimized or negated when measuring performance.
Why is private equity different? With PE, the opposite is the norm; the manager has control over the selection of investments and the timing of any drawdown of committed capital. Internal Rate of Return (IRR), which measures profitability, stands as the primary performance metric in PE, capturing timing and profitability across the life of the investment. IRR is sometimes called "discounted cash flow rate of return" and is usually measured over the life of the investment (since inception) as an annualized figure.
Supplementing IRR as additional PE performance metrics are:
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TVPI (Total Value to Paid-In), which gives the ratio of current value to the sum of the funds drawn down into the fund, less distributions, but unadjusted for capital cash flows. This limitation means that it is usual to see TVPI quoted alongside IRR.
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DPI (Distribution to Paid-In), which gives the ratio of distributions to the total paid-in capital; it also measures the scale of realized returns an investment has given through actual distributions.
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MOIC (Multiple on Invested Capital), which shows how much value was created relative to the dollars invested and PME (Public Market Equivalent), which compares private equity returns to a public benchmark.
Understanding these metrics provides a fuller PE performance picture: TVPI reflects total value creation; DPI shows what’s been returned; IRR shows the time-adjusted efficiency of capital deployment. But each metric has tradeoffs. For example, IRR can be distorted by early cash flows, while MOIC doesn’t account for time. The best practice is to look at the metrics in combination rather than relying on just one.
PE’s outperformance over public markets underscores the importance of robust performance tracking. From 2000–2023, PE delivered 11 percent annualized returns, compared to public equities’ 6.2 percent, according to CAIA. This consistent outperformance, even during market downturns, highlights the need for precise metrics like IRR, TVPI and DPI to evaluate and communicate investment success effectively.
Implications for Investors and Performance Systems
Given these nuances, investors face increasing challenges in tracking PE performance. Investors need a sophisticated performance measurement system to support the intricacies of PE investment tracking across current value, committed capital, capital drawn down, distributions (both cash and stock) and fund-level expenses. With PE investments growing in secondary markets and evergreens, managers and LPs need flexible tools to adapt to liquidity, valuation and reporting dynamics.
With the right solution, performance can be measured for a distinct PE general partnership, or at the asset or asset-class level, when part of a diversified portfolio of investments. Sophisticated systems, like SS&C Sylvan, empower investors to ingest user-defined portfolio properties and consolidate metrics—tracking everything from NAV and distributions to DPI, TVPI and IRR across funds, asset classes and vintage years. This creates transparency and agility in portfolio performance assessment.
Private equity has expanded rapidly, outpacing the growth of public markets, driving consistent earnings and offering investors greater flexibility through a growing secondary market. But its complexity demands more than traditional metrics; it requires IRR-based frameworks, multi-metric analysis and advanced systems to manage and report on performance with clarity and precision.
Learn More About Measuring Private Equity Performance
Join Private Equity performance experts from TSG and SS&C Advent on Thursday, October 30, for an insightful webinar discussion on the nuances and challenges of PE performance from the perspective of experienced practitioners. Register today!
