J-curve

The shape a private fund's reported return typically traces: negative early, as fees are charged before anything is sold, then rising as holdings are realised.

Example

A fund showing a negative multiple in its first years while every investment is still held and management fees have been drawn.

Important

Early figures in this shape say almost nothing about the eventual outcome, in either direction - which also makes the shape a convenient explanation for a fund that is genuinely not working.

Related terms

  • DPI (distributions to paid-in) — A fund multiple counting only money actually paid back to investors, divided by the capital they paid in.
  • TVPI (total value to paid-in) — A fund multiple counting cash already distributed plus the current value of everything still held, divided by the capital investors have paid in.
  • Unrealised gain — The difference between what an asset is currently marked at and its cost basis, where no sale has taken place.

Lessons that explain it

  • A multiple without time and cash tells you half the story — Portfolio and fund returns are described with TVPI, DPI and IRR. Each answers a different question: total value, cash actually returned, and return per year. Reading them together avoids common misinterpretations. (11 min)
  • Realised and unrealised: a mark is not money — An unrealised gain is somebody's opinion of what an asset would fetch. A realised one is what it did fetch. The distance between them is where a great many returns go to die. (10 min)
  • A fund's value is mostly an opinion until something is sold — Venture funds report a net asset value built on the GP's own marks. Only distributions are cash, which is why DPI and TVPI tell very different stories. (11 min)

All 578 terms in the Investing glossary