Of all the formulae that investors use to measure private funds, distributions to paid-in capital (DPI) stands out in many investors’ minds as one of the most straightforward. Put simply, DPI measures cash returned to investors as a percentage of what they invested in the fund. Investors concerned about the reality behind marketing hype, their cashflow or simply having liquidity to invest in a successor fund often value DPI as a way to discern a manager’s ability to actually return money to investors. In reality, however, DPI is not nearly so simple to use. When considered in isolation from other data, DPI is flawed at measuring how skillfully a GP is managing investors’ money and overall fund performance – especially given variables such as fund maturity and investment strategy. At certain points in a fund’s life, expecting any DPI at all would make little sense. This first article in a two-part series explains how DPI is calculated, how it contrasts with other performance metrics, its limitations and its growing popularity among investors. The second article will examine ways that DPI calculations can be distorted – both intentionally and unintentionally – to juice a fund’s performance numbers relative to reality. For more on how DPI can be distorted, see “LP Concerns and Common Misconceptions About the Rise of ‘Synthetic’ Distributions (Part One of Two)” (Jul. 11, 2024).