An AIF performance report can seem daunting, with acronyms and metrics not found in traditional investment statements. However, understanding a few key terms can empower you to effectively track your investment’s progress.
Key Metrics to Watch:
- IRR (Internal Rate of Return): This is the most common metric for profitability. It calculates the annualized return, considering the timing of your cash contributions and distributions. A higher IRR is better.
- MOIC (Multiple on Invested Capital): Also called TVPI (Total Value to Paid-In Capital), this simple ratio tells you how many times your money has multiplied. A MOIC of 2.5x means for every _1 you invested, the value is now _2.5.
- DPI (Distributions to Paid-In Capital): This shows how much cash has actually been returned to you. It’s the “realized” portion of your return.
Focusing on these metrics will give you a clear picture of both the current value and the actual cash performance of your AIF investment.
