From Gross to Net: Investor-Ready Phrasing for Performance Bridges in Private Markets (gross to net bridge phrasing examples)

1) Orient and Define: What a gross-to-net bridge is and why LPs expect it

A gross-to-net performance bridge is a transparent, step-by-step explanation that shows how a fund’s gross results convert into net results after fees, carried interest, and other costs. It connects what the portfolio generated before fund-level charges (gross MOIC, gross IRR) to what investors actually receive after those charges (net TVPI, net DPI, net IRR). Limited Partners (LPs) expect this bridge because it makes the economics of the fund visible and comparable. It demonstrates discipline around methodology, and it allows LPs to trace each major adjustment. In due diligence, this bridge is often decisive: a clear, consistent bridge signals credible performance reporting and lowers the perceived risk of hidden costs or selective presentation.

The bridge also links directly to the core private markets metrics that LPs use to evaluate managers:

• TVPI (Total Value to Paid-In): The sum of distributed and remaining value relative to capital contributed. Net TVPI is the headline multiple that indicates total value creation after all costs.
• DPI (Distributions to Paid-In): Realized cash returned to investors relative to paid-in capital. Net DPI shows the actual cash delivered to LPs after fees and carry.
• IRR (Internal Rate of Return): The annualized return accounting for the timing of cash flows. LPs look at both gross and net IRR, but ultimately net IRR determines whether the fund met return targets after costs.

Gross figures reflect portfolio company performance before the fund structure takes its share. Net figures reflect investor outcomes. The bridge is the narrative and numerical pathway between these two perspectives. It tells LPs where performance came from and where it was consumed by costs and market effects. When this bridge is presented consistently across funds and vintages, LPs can compare different strategies and manager practices with confidence. The best bridges protect against confusion by using clear labels, consistent definitions, and explicit assumptions about timing and methodology.

2) Components and Method: From gross to net, with clarity on methodology and timing

A typical gross-to-net bridge includes a set of recurring components. Each component has a specific meaning and a role in moving from the portfolio’s gross results to the investor’s net results. The main components usually include:

• Management fees: Ongoing fees charged by the fund to cover operations. These reduce net returns relative to gross, and they are often calculated on committed capital during the investment period and on invested or net asset value thereafter.
• Fund expenses: Administrative and operational costs (e.g., audit, tax, legal, administration) borne by the fund. These are distinct from fees and should be shown as a separate adjustment to avoid confusion.
• Carried interest (carry): The performance-based allocation to the GP once the preferred return or hurdle is satisfied. It reduces net outcomes and is driven by realized gains and the fund’s distribution waterfall.
• FX effects: Currency movements that can boost or reduce returns when investments or cash flows are denominated in currencies different from the reporting currency. FX can affect both valuation and distributions over time.
• Leverage: The use of credit facilities or portfolio-level debt can accelerate distributions, change the timing of cash flows, and influence IRR. Bridge explanations should clarify what is included at the portfolio level versus the fund level.
• Write-ups and write-downs: Valuation changes in unrealized investments that affect gross value. Clarity is needed on the valuation policy and whether the bridge includes interim adjustments versus realized outcomes.

The sequence of these items should reflect how costs and effects are recognized in the fund’s actual performance calculation. LPs want to see the mechanism: starting with gross value creation, then subtracting fees and expenses, then showing carry, and finally accounting for FX and other items that affect net value. The order should follow the fund’s economics and its governing documents, not personal preference. Any choice that could alter the interpretation—such as whether to present fees before carry, or where to place FX—must be stated in the methodology note.

Methodology and timing are central to trust. LPs will look for the following disclosures:

• Metric basis: Whether the bridge is presented off gross MOIC to net TVPI, or gross IRR to net IRR, and how DPI is integrated for realized outcomes.
• Period end: The exact cut-off date used for valuations and cash flows. This protects the comparability of different reports and funds.
• Valuation policy: The accounting standards or policies applied to unrealized assets, and whether third-party valuations or committees inform the marks.
• Expense allocation: The rules defining which costs are charged to the fund versus the management company, including any offsets for transaction or monitoring fees.
• FX approach: The reference rates, translation dates, and whether hedging gains/losses are included in the net figures.
• Leverage treatment: Whether subscription lines or other facilities are used, how they affect IRR timing, and how they are represented in DPI or RVPI.

By clarifying these elements, the bridge becomes more than a list of deductions. It becomes a documented process that LPs can audit and compare across managers and time periods. This is essential for reducing ambiguity and avoiding compliance risk.

3) Phrasing Patterns and Investor-Ready Wording: Modular sentences for each step

Investor-ready phrasing must be precise, neutral, and anchored in consistent definitions. The goal is to describe what changed, why it changed, and how it was calculated, without implying guarantees or using promotional language. Each component of the bridge benefits from a clean sentence structure: state the component, quantify its impact, explain the methodology, and note any timing or policy factors that matter.

For management fees, use wording that separates the fee basis and the result:

• Clearly identify the fee base and the period during which it applied.
• Clarify transitions from commitment-based to invested capital or NAV-based fees.
• Indicate whether offsets were applied (e.g., transaction fee offsets), but avoid mixing offsets with unrelated expenses.

For fund expenses, keep the description narrow and factual:

• Name the major categories of expenses and confirm they reflect fund-level costs under the partnership agreement.
• Specify that the expenses exclude GP-borne costs and mention any policies that allocate expenses to portfolio companies versus the fund.

For carried interest, emphasize the waterfall and realization status:

• State the conditions under which carry was accrued or paid (e.g., after meeting the preferred return or catch-up mechanics).
• Distinguish between accrued carry on unrealized gains and cash carry paid on realized proceeds.
• Avoid implying future carry outcomes by keeping the language tied to period-end data and realized events.

For FX effects, isolate currency translation from operating performance:

• Name the reporting currency, the translation approach, and whether hedging is present.
• Make clear that FX changes are separate from operating value creation in portfolio companies.

For leverage, describe the mechanism and timing impacts:

• Identify the types of leverage used (e.g., subscription line, NAV facility) and the purpose.
• Explain how leverage affected the timing of capital calls or distributions and any costs associated with the facility.

For write-ups and write-downs, connect to valuation policy and oversight:

• Reference the valuation framework, any third-party inputs, and the periodicity of reviews.
• Clarify that unrealized changes are subject to future revision.

Across all components, keep definitions consistent with industry usage:

• DPI: cumulative distributions to LPs divided by paid-in capital.
• TVPI: sum of DPI and RVPI, where RVPI represents remaining value over paid-in capital.
• IRR: annualized internal rate of return based on dated cash flows.
• PME/APME: public market equivalent frameworks for comparability with indices, when relevant to context.

Also anticipate common LP follow-up areas and address them in the phrasing:

• Methodology: State the calculation method you used, including how accruals are treated.
• Timing: Provide the period end date and note material events after period end separately.
• Attribution: Indicate whether contributions from fees, carry, FX, and leverage are shown as distinct steps and how they are measured.
• Comparability: Confirm that the same definitions and sequencing are applied across funds and vintages, and highlight any deviations.

The language should remain concise but data-anchored. The preferred pattern is: identify the component, quantify the effect on the metric, specify the basis and timing, and highlight any policy factor that influences interpretation. This pattern makes each sentence usable in a performance deck, a quarterly letter, or a due diligence questionnaire without rewriting.

4) Practice and QA: Mini-drills and a readiness checklist for clarity and consistency

To build fluency, focus your internal practice on two skills: mapping the sequence and refining the phrasing. First, map the sequence from gross to net using the exact metrics you report. Start from the gross headline (gross MOIC or gross IRR), move through the adjustments in a fixed order, and arrive at net TVPI, net DPI, and net IRR. Keep the sequence constant across materials so LPs learn how to read your bridge. Second, refine the phrasing by applying the modular pattern to each component. Read each sentence aloud to check for unnecessary qualifiers or implied promises.

As you finalize the bridge, use a quality assurance checklist to ensure LP readiness:

• Definitions: Are DPI, TVPI, RVPI, and IRR defined in a way that matches industry practice and your prior reports?
• Scope: Does the bridge clearly state whether it covers the whole fund, a strategy sleeve, or a subset of investments, and does it include or exclude co-investments?
• Period end: Is the valuation date explicit, and are material post-period events disclosed separately without mixing them into period metrics?
• Sequencing: Is the order of adjustments consistent with the fund’s economics and previously published bridges?
• Quantification: Is each step shown with a clear effect on multiples or IRR, avoiding ranges or vague descriptors?
• Methodology: Are the calculation rules for fees, expenses, carry, FX, and leverage described succinctly and consistently with the LPA and valuation policy?
• Accruals vs. cash: Are you explicit about accrued carry versus paid carry, and unrealized versus realized components elsewhere in the bridge?
• FX: Is the reporting currency stated, the translation method identified, and any hedging impact clearly noted?
• Leverage: Is the type and purpose of leverage identified, along with any impact on timing and cost?
• Consistency: Are terms and labels identical across slides, letters, and DDQ responses, and are figures internally reconciled?
• Compliance: Does the language avoid forward-looking claims and stick to observable facts at the reporting date?

Finally, align the bridge with the narrative in your broader communication. If your letter attributes outperformance to operational improvements, the bridge should reflect that by showing where gross value creation was strong and by cleanly isolating non-operational effects like FX. If you discuss liquidity, ensure DPI is clearly articulated and distinguished from unrealized value. When LPs see the same story told through metrics, adjustments, and wording, their confidence increases. A stable, investor-ready bridge reduces follow-up questions, shortens due diligence cycles, and supports a durable relationship grounded in clarity.

By framing gross-to-net as a disciplined pathway from portfolio results to investor outcomes, and by using precise, neutral, and consistent phrasing, you provide LPs with exactly what they need: an auditable explanation of how value is created, allocated, and delivered. The approach is simple in structure but demanding in execution. If you maintain consistent definitions, transparent methodology, and focused language, your gross-to-net bridge will function as a reliable guide to the fund’s economics and a strong foundation for LP trust.