LPs just spent three years hearing about how the exits were coming. By the middle of last year, most of them stopped believing it. This shift became clear in re-up conversations. LPs historically asked about IRR first. Now they are focused on Distributions to Paid-In Capital, or DPI, or cumulative distributions divided by paid-in capital, a ratio far too vanilla to have earned its own slide in a 2019 pitch deck.
Unlike IRR, which rewards early markups regardless of exit timing, DPI measures actual cash returned relative to capital deployed, forcing funds to prove distributions aren’t just unrealized gains or structured liquidity.
Part of this shift is structural. Because IRR annualizes returns, a dollar of value is weighted more heavily if it appears as an early markup rather than a later realization. This incentive structure influences valuation practices, particularly around fundraising, as some underperforming funds tend to mark up valuations more aggressively than the realized cash ultimately supports.[1] This strategy was effective until the promised recovery failed to materialize for four consecutive years. The gap between reported figures and actual wire transfers became unsustainable.
Where the Recovery Actually Landed
2025’s headline exit value hit $905 billion, a real rebound. But 78% of it landed in mega exits while mid-market inventory stayed close to flat.[2] Then the first half of 2026 went sideways: U.S. deal volume fell 34% year over year while average deal size rose, a natural result of capital concentrating into a smaller number of consensus-driven deals.[3] Underneath, the 2020 and 2021 vintages that should be distributing cash right now mostly aren’t.
Why LPs Stopped Trusting IRR
As a result, 54% of LPs now rate DPI as critical or most critical, tied with MOIC, while delayed exits and illiquidity top the concern list at 70%.[4] The arithmetic explains why. Capital calls persist while distributions remain scarce. Pensions and endowments facing negative net cash flow must source liquidity elsewhere, often before they can evaluate a manager’s track record.
Fundraising shows the effect most clearly: the market is splitting in two, with strong distributors closing fast and everyone else grinding toward a first close. In fact, the buyout funds that closed quickest last year had both returns and a distribution history behind them.[5]
Manufactured Liquidity Is a Partial Fix, Not an Exit
With trade buyers getting picky and the IPO window open mostly to very large investors, GPs have turned to continuation vehicles, NAV facilities, and secondaries sales, which grew 41% year over year in 2025.[6] Everything in that bucket still adds up to less than 10% of exit value, treated as relief for specific funds rather than a fix for the exit market. They also come with paperwork that a clean sale never required: complex documentation, such as LPAC consent and independent pricing for continuation vehicles, or borrowing base and covenant reporting for NAV facilities. In both cases, lenders and investors now scrutinize whether the DPI is genuine and verify the cost basis of the underlying portfolio.
How to Prove a Distribution Is Real
A continuation vehicle diligence list wants monthly management accounts, valuation memos naming the comparable set and the date each mark was struck, capital account histories, and KPI series that match the numbers already sent to LPs. A NAV facility wants eligible-asset tracking and a borrowing base certificate on the lender’s own calendar. LPs want the effect on DPI and remaining exposure at the waterfall level before they vote.
None of this is exotic. The problem is that the data lives in different places- administrator books, valuation systems, deal tracking tools and reconciling those datasets is a quarterly ritual, not a continuous operation. This disconnect often leaves data rooms a quarter behind and senior staff spend valuable time reconciling data instead of negotiating prices. When the market window opens, teams are still arguing over numbers.
How IVP Sees It
Our work with fund managers this cycle shows a clear divide between firms that acted and firms that didn’t. The DPI pressure reads as a market problem from a distance. Up close, it’s operational: the managers who executed a continuation vehicle or NAV facility can produce asset-level detail quickly because deal data, valuations, and capital activity are already consolidated in one golden record. Every mark now carries a burden of proof, and the LPAC, valuation agent, buyer, and lender all ask the same question in different formats.
If you handle each as a one-off extract, the cost compounds with every transaction. If you build reporting as an output of the operating model instead, the next request becomes a query someone runs on a Tuesday. This is the buy-side operating model that IVP for Private Funds is built around: capital activity, valuations, and deal data are centralized in one location, so a GP doesn’t have to rebuild a record from scratch if a lender’s calendar or a buyer’s diligence list starts the clock.
DPI Scrutiny Isn’t Going Away
Exit markets will come back, because they always do. But that won’t undo the new standard this period has set. LPs have re-anchored on cash, fundraising runs through a DPI filter, and every engineered distribution from here to the recovery gets examined at the asset level by those who are already skeptical. Firms that establish this kind of reconciliation discipline today will be very well positioned to validate DPI effectively in future cycles.
[1] Brown, Gredil & Kaplan, “Do Private Equity Funds Manipulate Reported Returns?” NBER Working Paper No. 22493, published in the Journal of Financial Economics
[2] Allianz Research, “Private equity in transition: from distribution drought to selective recovery” (2026)
[3] PwC, “Private equity: US Deals 2026 midyear outlook” (June 2026)
[4] McKinsey & Company, “Global Private Equity Report 2026”
[5] Bain & Company, “Private Equity Outlook 2026: Gaining Traction”
[6] Bain & Company, “Private Equity Outlook 2026: Gaining Traction”
