As an investor, what are the most important ways to measure how well a private equity fund is doing?

From an investor's point of view, the two most important ways to measure a private equity fund's success are Total Value to Paid-In Capital (TVPI) and Internal Rate of Return (IRR). TVPI tells you the total value generated for every euro invested, while IRR measures the annualized rate of return, considering the timing of money going in and out.

What is 'TVPI' and why should I, as an investor, care about it?

TVPI stands for Total Value to Paid-In Capital. It shows you the total value a fund has created from your investment, including both cash you've already received (distributions) and the current estimated value of the remaining investments. It's important because it gives you a clear picture of the overall return multiple, regardless of when you received the cash.

What is 'IRR' and how does it relate to how quickly I get my money back?

IRR stands for Internal Rate of Return. It measures the annualized return on your investment, but it's very sensitive to when you put money in and when you get money back. The faster you receive distributions, the higher your IRR will generally be, even if the total amount of money returned is the same.

Why is it important to know if the performance numbers I see are 'net of fees and expenses'?

When a fund manager reports performance, you need to know if the numbers are 'net of fees and expenses.' This means they've already subtracted all the costs and charges. Focusing on 'net cash-on-cash returns' ensures you're looking at the actual money you, as the investor, are getting back, not just the fund's gross performance before deductions.

I'm a Golden Visa investor. Will my fund's performance be the same as other investors, like big institutions?

Not necessarily. As a Golden Visa investor, you usually have to invest your full capital upfront, unlike institutional investors who pay in stages. This can negatively impact your IRR, even if the overall fund performance (TVPI) is the same, because your money is 'at work' for a longer period before distributions occur.

Why do Golden Visa rules affect how and when I receive money back from the fund?

Golden Visa rules require you to maintain your initial investment amount for at least five years to qualify for residency or citizenship. This means that funds might primarily distribute returns as dividends during this period, delaying the return of your initial capital. This delay can affect your IRR, even if the total return (TVPI) is ultimately the same as other investors who might receive capital reductions sooner.

Should I be concerned if a private equity fund seems to focus only on Golden Visa investors?

Yes, it could be a red flag. The best-performing private equity funds typically attract a wide range of investors, including large institutions, and are not solely designed for Golden Visa participants. A fund that seems exclusively focused on GV investors might not have the same rigorous investment strategy or access to top-tier deals.

How can I get a realistic idea of what returns to expect from a Golden Visa fund?

The most reliable source for return expectations is the Key Information Document (KID) provided by the fund. This document outlines performance scenarios (e.g., stressed, moderate, favorable). You should specifically look for a KID tailored to Golden Visa investors, as it should account for the program's unique requirements. The 'moderate scenario' can be a good benchmark for your expectations.

Given the complexities, which metric (TVPI or IRR) should I focus on most as a Golden Visa investor?

While both are important, it's generally recommended that Golden Visa investors place a greater emphasis on Total Value to Paid-In Capital (TVPI). Because your IRR can be significantly impacted by the timing of capital reductions due to GV rules, TVPI offers a more stable measure of the overall return multiple achieved by the fund, regardless of when you receive the cash.

What are 'capital calls,' and how do they differ for me as a Golden Visa investor compared to other investors?

Traditionally, private equity funds make 'capital calls,' asking investors for portions of their committed capital over time as investment opportunities arise. However, for Golden Visa investors, the program typically requires the full €500,000 to be deployed upfront in a single capital call. This means your entire investment starts 'working' from day one, which can affect your annualized returns (IRR) compared to others.

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Decoding Private Equity Returns: A Guide for Portugal Golden Visa Investors

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Cristóvão Matos

Managing Director

Nomera Capital

Published: May 21, 2025Updated: May 21, 2025