Multiple on-invested capital (MOIC) provides a straightforward measure of a fund’s performance at any point in its lifecycle. It’s calculated based on the total value of all shares (both realized and unrealized) in the fund divided by the fund’s investment in the asset.

For example, say private equity fund Super Capital buys Supermarket 1 for £10bn and Supermarket 2 for £10bn. It sells Supermarket 1 to Supermarket 3 for £15bn in year three and keeps hold of Supermarket 2, which is currently valued at £15bn. Combining the realized (Supermarket 1) and unrealized (Supermarket 2) share values, and dividing the initial investment, its MOIC is 1.5.

This is similar to another metric: distributed paid-in capital (DPI), which only covers realized gains. This is more common in growth equity and venture capital, where calculations can be more complex due to dilution over multiple funding rounds.

The figure above is a gross figure best used for evaluating fund managers’ performance by limited partners (LPs), i.e. the investors. Net MOIC includes the cost of the management fees and carried interest taken by the fund manager, which can be a major consideration for LPs.

MOIC can be a simple way to assess fund manager or investment performance from the first acquisition date to any point in the fund cycle. However, MOIC is time-agnostic, referring to gains on an absolute basis, rather than the internal rate of return (IRR) which considers an annualized basis.

This gives the IRR, the percentage rate of growth of cash flows per annum, the upper hand when it comes to understanding the timing of capital calls and distributions. These are instances where the GP or fund manager ‘calls up’ capital for an investment from the LPs, and distributes returns to the LPs, respectively.

MOIC also pays little notice to the potential fluctuations in net asset value (NAV) – the valuation of the assets during the period. While returns for partners (known as carried interest) are determined on an IRR basis, GPs are ultimately judged by their MOIC at the end of the fund, as it reflects the total value created for investors.