Loss Ratio

The share of a fund's invested capital that went into deals returning less than their cost.

Example

90,000,000 of a 500,000,000 fund in deals below 1x gives a loss ratio of 18%.

In buyouts, where companies are established, a high loss ratio is a warning even if the fund's average return looks good.

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.
Leveraged Buyout (LBO) — The purchase of a company financed largely with debt placed on the acquired company, which repays it from its own cash flow.

Appraising one fund: where returns came from, and how often deals lost money — A buyout track record is judged by its dispersion, its loss rate and the source of its gains, not by the average multiple. (13 min)