Private market investors and advisors can achieve confidence – and possibly more successful investment outcomes over time – if they have a solid grasp of performance metrics. As we explained in a related article, Total Value to Paid-In (TVPI), Distributed to Paid-In (DPI), and Internal Rate of Return (IRR) are critical measures of how a fund operates and its results over time.
Multiple on Invested Capital (MOIC) is as crucial as these other metrics. Yet, investors and advisors tend to overlook MOIC in performance discussions. Despite its apparent simplicity, understanding what MOIC represents, how fund managers calculate the metric, and what it says about a fund over time can significantly enhance the decision-making capabilities of Registered Investment Advisors (RIAs) and High-Net-Worth Individuals (HNWIs).
Multiple on Invested Capital (MOIC) measures how many times an investment has multiplied over its lifetime.
Because MOIC offers a straightforward measure of value creation, it is beneficial for quick performance comparisons across different funds or investment strategies. For RIAs and HNWIs, this clarity allows for more informed and confident decision-making about investment opportunities and fund managers. To effectively utilize MOIC when assessing fund managers, RIAs and HNWIs should consider the following:
Just as looking at TVPI, DPI, or IRR in isolation will provide a slice of information about a fund, MOIC alone does not capture the complete picture of an investment's performance. It doesn't consider timing, liquidity, or the reinvestment potential of earlier distributions. Furthermore, a single high-performing asset can disproportionately influence MOIC.
A high MOIC typically signifies effective capital deployment and profitable investments. A lower MOIC could suggest underperformance or challenges in realizing value. Imagine comparing two venture capital funds:
At first glance, Fund B might appear superior. However, considering IRR and the longer investment period could shift preferences towards Fund A, depending on the investor's liquidity needs and risk profile.
RIAs and HNWIs should combine MOIC with other metrics, detailed diligence, and qualitative assessments for comprehensive investment evaluation.
MOIC and IRR serve different but complementary roles in evaluating investment performance. Unlike IRR, MOIC only represents absolute returns without considering timing in the equation. That is why MOIC is the simplest possible snapshot of how much value a fund or manager has created relative to the initial capital invested. MOIC answers, "How much has my investment multiplied?" Whereas IRR answers, "How quickly has my investment grown?" Together, they provide a balanced view of both absolute and time-adjusted returns.
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At BIP Capital, we emphasize the importance of clear, actionable investment metrics. MOIC complements our broader analytical framework, supporting our commitment to transparency and client education. By systematically integrating MOIC, IRR, and other metrics, we equip RIAs and HNWIs with the tools to make informed investment decisions. Our approach prioritizes:
MOIC provides clarity when evaluating private market investment performance. Combined with complementary metrics like IRR and thorough diligence, MOIC helps RIAs and HNWIs accurately gauge the effectiveness of their investments. Effective use of this metric supports informed, confident decision-making, positioning investors for long-term success in private capital markets.
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