Module 2 · Alternative Investments

Alternative Investment Performance and Returns

EN: IRR, MOIC, fee impact; biases in alt-returns indices.
VN: IRR, MOIC, ảnh hưởng phí; sai lệch trong index alt.

1. IRR & MOIC Core

\[ \text{IRR}: \sum_{t=0}^{N}\frac{CF_t}{(1+r)^{t}} = 0 \] \[ MOIC = \frac{\text{Total distributions} + \text{Residual NAV}}{\text{Total contributions}} \] \[ DPI = \frac{\text{Distributions}}{\text{Contributions}}, \quad RVPI = \frac{\text{Residual NAV}}{\text{Contributions}}, \quad TVPI = DPI + RVPI \]

DPI = Distributed-to-Paid-In; RVPI = Residual-Value-to-Paid-In; TVPI = Total Value-to-Paid-In = MOIC.

2. Fee Impact on Returns Core

Hedge fund "2 and 20" example

Gross 20% gross return.
Net Subtract 2% mgmt + 20% × (net of mgmt fee return) carry.
Hurdle Carry only on returns above hurdle.
Order Mgmt fee first, then carry on the residual.

3. Biases in Alt-Index Data Concept

Survivorship Failed funds drop out — index overstates returns.
Backfill New entrants report only good past returns selectively.
Self-selection Voluntary reporting biases sample.
Stale-pricing Smoothed marks understate volatility.

Practice problem Practice

Practice problem

A PE fund: total contributions $100M, distributions to date $80M, residual NAV $60M. Compute DPI, RVPI, and TVPI.

Show solution

DPI = 80 / 100 = 0.80×

RVPI = 60 / 100 = 0.60×

TVPI = DPI + RVPI

DPI = 0.80; RVPI = 0.60; TVPI = 1.40 (≈ MOIC)