Realized vs. Unrealized with Rigor: Performance Narrative Phrasing that Addresses Outliers and TVPI Dips

1) Anchor the definitions and why they matter now

In private markets, performance is observed through two complementary lenses: realized and unrealized. Realized performance refers to cash events that have already occurred and are no longer subject to valuation judgment—distributions from exits, recapitalizations, interest or dividends paid out, and other cash flows that have left the portfolio and returned to limited partners (LPs). These flows underpin DPI (Distributions to Paid-In), a measure of how much capital has been returned relative to what LPs have contributed. Realized outcomes also influence IRR (Internal Rate of Return) because IRR is sensitive to the timing and magnitude of cash flows; early, sizable distributions can materially lift net IRR.

Unrealized performance, by contrast, is the marked value of the remaining holdings. It is driven by valuation methods—comparable company multiples, precedent transactions, discounted cash flows, and event-driven adjustments—applied under fair value standards. Unrealized value, together with realized value, forms TVPI (Total Value to Paid-In), which equals DPI + RVPI (Residual Value to Paid-In). The unrealized portion is captured in RVPI, and thus TVPI is a bridge across both realized and unrealized buckets.

Understanding gross vs. net is critical. Gross performance metrics reflect portfolio company outcomes before management fees, fund expenses, and carried interest. Net metrics reflect what LPs actually receive after those costs. LPs typically evaluate net DPI, net TVPI, and net IRR for capital allocation decisions, while gross metrics help assess the underlying asset selection and value creation before fees. A rigorous narrative will make clear which side—gross or net—is being discussed at each point, and if both are referenced, it will maintain consistent labeling.

This distinction matters acutely when TVPI dips or outliers appear. A dip in TVPI can stem from market multiple compression, write-downs on specific names, foreign exchange movements, or temporary impacts from financing practices such as subscription lines of credit. Outliers—either exceptional winners or pronounced underperformers—can distort dispersion and complicate quartile comparisons versus benchmarks. When such conditions are present, LPs scrutinize the connections between realized and unrealized results: Are realized distributions confirming the underwriting case? Is the unrealized book supported by current market evidence and rigorous methodology? How do timing effects and financing tools influence IRR and interim TVPI? Under these conditions, precise, compliant phrasing becomes essential to preserve credibility, avoid overclaiming, and convey a balanced, evidence-based view of performance.

2) Compliant phrasing building blocks

To maintain rigor and compliance, use sentence patterns that cleanly separate realized evidence from unrealized valuation and clearly identify sources of volatility. Each sentence should state the metric, the level (gross or net), the time basis, and the driver.

• Realized evidence:

  • “On a net basis, DPI stands at X% as of [date], reflecting distributions from [types of exits] with an average hold period of [Y] years.”
  • “Realized IRR on exited positions is [X%] gross and [Y%] net as of [date], primarily driven by [operational improvements, multiple expansion/contraction, deleveraging].”
  • “Cumulative distributions this period were [X], with [Y]% sourced from [sector/strategy] exits; we do not include pending transactions until cash is received.”

• Unrealized valuation methods and evidence:

  • “Unrealized value (RVPI) is supported by [DCF/comparable multiples/precedent transactions] applied at quarter-end, calibrated to observable market data as of [date].”
  • “We applied fair value principles consistently across the portfolio, reflecting changes in company performance and market multiples; write-ups and write-downs were recognized where warranted.”
  • “Valuation sensitivities indicate that a [±1.0x] change in the median EBITDA multiple would adjust unrealized value by approximately [X]% as of [date].”

• Linking DPI, TVPI, and IRR across realized/unrealized buckets:

  • “Net TVPI of [X]x equals net DPI of [A]x plus net RVPI of [B]x; the realized component (DPI) provides the cash foundation for IRR, while RVPI reflects the remaining value yet to be realized.”
  • “Gross and net IRR differ primarily due to management fees, expenses, and carry; we present both to isolate asset-level performance (gross) from LP-level outcomes (net).”

• Addressing dispersion, quartiles, and outliers:

  • “Performance dispersion widened this period due to a small number of outlier positions; median position performance remained within [X]–[Y]% bands.”
  • “Relative to [benchmark or quartile data source], the fund’s TVPI sits at [quartile/percentile] on a net basis; dispersion reflects [sector concentration, stage mix, market volatility].”
  • “We attribute the outlier outcomes to company-specific drivers rather than a systematic shift in underwriting quality.”

• Volatility drivers (write-ups/downs, exits, subscription lines, PME/APME):

  • “TVPI declined sequentially due to write-downs in [sector], partially offset by realizations in [sector]; we recognized these changes under the same valuation framework used in prior periods.”
  • “Subscription line usage modestly accelerated capital calls early in the period, which can temporarily affect net IRR; we provide metrics both with and without sub-line effects for clarity.”
  • “PME/APME analysis versus [public index] indicates [out/under]performance in public market equivalent terms; short-term variance reflects multiple compression in comparable public peers.”

• Gross vs. net clarity:

  • “Unless otherwise noted, figures are net of fees, expenses, and carry; gross figures are presented to illustrate asset-level outcomes and may not be realized by LPs.”

These building blocks keep the narrative measurable, specific, and appropriately caveated, while still conveying momentum and discipline.

3) Model full narratives

Below are three condensed templates you can adapt. Each integrates realized and unrealized dynamics, addresses dispersion, and clarifies gross vs. net. Replace bracketed items with your fund’s data and ensure consistency with your reporting policies.

• Steady case narrative:

  • “As of [date], the fund’s net TVPI is [X]x, comprising net DPI of [A]x and net RVPI of [B]x. Realized distributions this period were driven by [types of exits], supporting a net DPI increase of [Y]%. Net IRR stands at [Z]%, with the realized component demonstrating execution on our value-creation plan. The unrealized book is valued using [valuation methods], calibrated to market data at quarter-end; write-ups and write-downs were recognized consistent with our policy. Dispersion remains contained: while a few names outperformed, the median asset advanced in line with plan. Relative to [benchmark/quartile], performance is within the [Xth] percentile net of fees. Subscription line usage was [low/moderate], with minimal impact on net IRR; PME/APME versus [index] remains [stable/supportive]. We continue to prioritize realizations where fundamentals and market conditions align, while the remaining portfolio retains multiple paths to exit.”

• TVPI dip case narrative:

  • “Net TVPI moved from [X]x to [X–Δ]x this period, with net DPI steady at [A]x and net RVPI adjusting to [B–Δ]x. The decline reflects market multiple compression in [sector] and write-downs on [number] positions following revised outlooks; these changes were recognized under our standard fair value procedures. Realized activity remained constructive, with distributions from [exits] supporting net IRR of [Z]% and reinforcing our underwriting assumptions. We present gross and net figures to separate asset-level performance from LP-level results; subscription line usage affected interim IRR timing but not outcome economics, and we disclose both views. Dispersion widened due to a small set of underperformers; however, the median asset’s operating KPIs remained on track. PME/APME versus [index] shows modest underperformance over the period coincident with public peer multiple shifts. We expect unrealized valuations to normalize as company fundamentals convert to cash events; in the interim, realized DPI provides tangible evidence of value creation.”

• Outlier-heavy case narrative:

  • “Net TVPI of [X]x comprises net DPI of [A]x and net RVPI of [B]x, with performance dispersion driven by outlier positions in [sector/strategy]. A handful of assets contributed a majority of write-ups, while several earlier-stage names were marked conservatively due to limited near-term comparables. We value the portfolio using [methods], benchmarking to observable data as of quarter-end and reflecting both company progress and market factors. Realized distributions from [exits] support net IRR of [Z]%, though gross-to-net differences remain consistent with fees and carry. Quartile placement relative to [peer set] is influenced by concentration in top performers; to avoid overstating, we present both mean and median position performance. PME/APME analysis versus [index] indicates outperformance tied to idiosyncratic winners; we acknowledge that future outcomes will depend on converting unrealized gains into distributions. We are pacing exits to align with operational milestones and market windows, aiming to translate unrealized appreciation into realized DPI.”

These narratives are intentionally restrained: they attribute movements to identified drivers, connect realized and unrealized components, and avoid promises or forecasts beyond supported evidence.

4) Guided practice with checks

When adapting the templates, maintain clear boundaries between realized facts and unrealized estimates, and label all metrics correctly. Use the following guidance to structure your own LP-ready narrative.

• Do:

  • State metrics with level, timing, and basis: “As of [date], net TVPI is [X]x, comprised of net DPI [A]x and net RVPI [B]x.”
  • Attribute changes to specific, verifiable drivers: “TVPI declined due to [multiple compression/write-downs/FX], offset by [exits/write-ups].”
  • Explain methodology succinctly: “Valuations apply [DCF/comps] calibrated to market data and company performance at quarter-end.”
  • Isolate gross from net: “Gross IRR is [X]%, net IRR is [Y]%; the delta reflects fees, expenses, and carry.”
  • Acknowledge dispersion and outliers factually: “Performance dispersion widened; median asset performance remained within [band].”
  • Disclose subscription line effects: “Sub-line usage influenced interim IRR timing; we present with/without analyses.”
  • Provide PME/APME context without overreliance: “PME/APME vs. [index] shows [pattern], consistent with peer multiple moves.”

• Don’t:

  • Conflate realized and unrealized outcomes: don’t imply that unrealized marks are equivalent to cash returns.
  • Overclaim persistence or forecast certainty: avoid definitive language about future exits or valuations.
  • Mix gross and net figures in the same sentence without labeling; avoid selective presentation that could mislead.
  • Ignore dispersion: don’t present only top performers; include median and interquartile context where available.
  • Attribute performance solely to manager skill during broad market moves; acknowledge external drivers like multiples and FX.

A reliable narrative aligns realized evidence with unrealized potential. The realized side—DPI and realized IRR—demonstrates that value creation is converting to cash. The unrealized side—RVPI within TVPI—shows what remains to be earned and must be justified by consistent valuation methods tied to market data and company performance. TVPI dips and outliers are not narrative failures; they are signals to deepen clarity. By explicitly linking DPI, TVPI, and IRR across both buckets, labeling gross vs. net, and disclosing volatility drivers such as write-ups/downs, exit mix, subscription lines, and PME/APME context, you present a balanced, professional account that meets LP expectations. This rigor builds trust: it shows that you recognize what is known (realized), what is estimated (unrealized), and how the two interact through time to create durable, cash-backed results.