Active pitchbook multiple

The term "Active Pitchbook Multiple" refers to a performance metric presented in a private equity or venture capital firm's fundraising materials, known as a pitchbook, that provides a comprehensive view of investment performance by incorporating both realized gains from exited investments and the unrealized value of ongoing, or "active," holdings. This metric falls under the broader category of Private Equity Valuation and Investment Performance Metrics, crucial for assessing a fund's track record. The inclusion of "active" emphasizes the forward-looking or current portfolio status, a key distinction in the often illiquid private markets.

What Is Active Pitchbook Multiple?

An Active Pitchbook Multiple is a specific type of investment multiple used by private equity and venture capital firms to showcase their investment returns to prospective limited partners (LPs). Unlike a multiple based solely on completed investments, the Active Pitchbook Multiple incorporates the current valuation of still-held investments, alongside the realized value from divested assets. This provides a holistic snapshot of a fund's performance, reflecting both past successes and the potential value inherent in its current portfolio. This metric is particularly relevant in private equity given the long holding periods and staggered exit strategies for portfolio companies.

History and Origin

The evolution of performance reporting in private markets is closely tied to the increasing demand for transparency from investors and the unique characteristics of illiquid investments. While the concept of evaluating return on invested capital has always been central to finance, the specific emphasis on an "Active Pitchbook Multiple" as distinct from a purely realized multiple emerged more prominently as private equity grew and sophisticated data providers entered the market. Firms needed a way to demonstrate the ongoing value creation in their portfolios, even before all investments were exited.

The widespread adoption of detailed financial metrics in pitchbooks gained traction as the private capital industry matured. Data platforms like PitchBook have played a significant role by aggregating and standardizing private market data, including deal multiples and valuations¹⁸. This enabled general partners (GPs) to present more comprehensive performance data, including active, unrealized values, to potential investors in a structured format. Regulatory bodies, such as the U.S. Securities and Exchange Commission (SEC), have also influenced how performance is presented, with rules dictating the inclusion of both gross and net performance and specific conditions for presenting extracted performance, which often includes active investments¹⁶, ¹⁷.

Key Takeaways

• An Active Pitchbook Multiple showcases both realized returns and the current, unrealized value of ongoing investments.
• It is a critical metric for private equity and venture capital firms in their fundraising efforts.
• The multiple offers a comprehensive view of a fund's past performance and current portfolio health.
• Its calculation includes the total value (realized distributions plus unrealized fair value) divided by the total capital invested.
• Limitations include reliance on subjective fair value estimations for unrealized assets and a lack of consideration for the time value of money.

Formula and Calculation

The Active Pitchbook Multiple is fundamentally an adaptation of the Multiple on Invested Capital (MOIC), also known as the Investment Multiplier or Total Value to Paid-in Capital (TVPI). It measures the total value generated by an investment relative to the capital invested.

The formula for the Active Pitchbook Multiple is:

Where:

• Total Realized Distributions represents the cash proceeds received from exited investments within the portfolio.
• Current Unrealized Value represents the most recent fair value assessment of investments still held by the fund, often based on quarterly or annual valuations.
• Total Invested Capital refers to the cumulative capital calls made by the fund to its limited partners (LPs) for investment purposes.

Interpreting the Active Pitchbook Multiple

An Active Pitchbook Multiple provides a clear ratio illustrating how many times the initial capital invested has been "multiplied." For example, an Active Pitchbook Multiple of 2.0x means that for every dollar invested, the fund has generated two dollars in total value (combining realized proceeds and current unrealized value).

Interpreting this multiple requires context. A higher multiple generally indicates better performance, but it should be evaluated alongside other financial metrics like the Internal Rate of Return (IRR), which accounts for the time value of money and the timing of cash flow. The "active" component is crucial because private equity investments have long lifecycles, and a significant portion of a fund's potential returns may still be unrealized. Investors review this metric to gauge the overall success of a fund's investment strategy and the perceived value of its current holdings.

Hypothetical Example

Consider "Alpha Growth Fund I," a hypothetical private equity fund that made three investments:

1. Company A: Invested $50 million, exited for $120 million.
2. Company B: Invested $30 million, still held, current fair value $75 million.
3. Company C: Invested $20 million, still held, current fair value $40 million.

To calculate Alpha Growth Fund I's Active Pitchbook Multiple:

• Total Invested Capital: $50 million (A) + $30 million (B) + $20 million (C) = $100 million
• Total Realized Distributions: $120 million (from Company A)
• Current Unrealized Value: $75 million (Company B) + $40 million (Company C) = $115 million

Alpha Growth Fund I's Active Pitchbook Multiple is 2.35x, indicating that for every dollar invested, the fund has generated $2.35 in total value, considering both realized profits and the current value of its active portfolio company holdings.

Practical Applications

The Active Pitchbook Multiple is primarily used in the context of private equity fundraising and investor communications.

• Fundraising: Private equity firms prominently feature this multiple in their pitchbooks to attract new limited partners (LPs), demonstrating their ability to generate significant returns on capital invested¹⁵. It provides a quick and easily understandable summary of the fund's overall performance.
• Investor Reporting: General partners (GPs) use the Active Pitchbook Multiple to update existing investors on the ongoing performance of the fund, particularly concerning the unrealized value of illiquid assets that have not yet been exited.
• Benchmarking: While funds typically compare themselves against established benchmarks like the Internal Rate of Return (IRR) for a full lifecycle, the Active Pitchbook Multiple offers a comparable measure of capital efficiency across different funds or specific vintage years within a fund's active portfolio. Data providers, such as PitchBook, enable firms to analyze deal multiples and compare them to peer sets¹⁴.
• Regulatory Compliance: The presentation of performance metrics in pitchbooks is subject to regulatory oversight, particularly by bodies like the SEC. Recent guidance has clarified requirements for presenting gross versus net performance and extracted performance, which directly impacts how Active Pitchbook Multiples are disclosed to ensure they are not misleading¹³.

Limitations and Criticisms

Despite its utility, the Active Pitchbook Multiple has several limitations, primarily stemming from its reliance on unrealized valuations and its inherent simplicity:

• Subjectivity of Unrealized Value: A significant portion of an Active Pitchbook Multiple often derives from the unrealized value of active investments. The valuation of illiquid, private portfolio company assets is inherently subjective and can be challenging due to a lack of observable market prices¹¹, ¹². While managers aim for fair value based on established methodologies, these valuations require judgment and can be influenced by management's estimates, potentially introducing bias⁹, ¹⁰.
• No Time Value of Money: Similar to other multiples like MOIC, the Active Pitchbook Multiple does not account for the time over which the returns were generated⁷, ⁸. A 2.0x multiple achieved in two years is significantly better than the same multiple achieved in ten years, but the multiple itself doesn't distinguish this. This is where metrics like Internal Rate of Return (IRR) provide a more complete picture.
• Lack of Net Performance: An Active Pitchbook Multiple, when presented gross, does not deduct management fees, carried interest, or other fund expenses. This can inflate the perceived return from an investor's perspective⁶. While recent SEC Marketing Rule updates permit presentation of gross performance for subsets of investments, they often require accompanying or easily accessible net performance for the total portfolio to provide appropriate context⁴, ⁵.
• Potential for Overstatement: Academic research has suggested that reported private equity performance, particularly that driven by accounting valuations of ongoing investments, may be overstated in some cases¹, ², ³. This highlights the importance of thorough due diligence by investors when reviewing these metrics.

Active Pitchbook Multiple vs. Multiple on Invested Capital (MOIC)

The terms "Active Pitchbook Multiple" and "Multiple on Invested Capital (MOIC)" are closely related and often used interchangeably, but the former carries a more specific connotation tied to its presentation and purpose.

Essentially, the Active Pitchbook Multiple is MOIC as it appears in a fundraising presentation, specifically highlighting the contribution of still-held assets. While MOIC broadly refers to the total value returned or returnable on an investment, the "Active Pitchbook Multiple" specifically points to its use in a marketing document where current, unrealized valuations of active investments are a key component of the performance story.

FAQs

What is the primary purpose of an Active Pitchbook Multiple?

The primary purpose is to showcase a private equity or venture capital fund's comprehensive performance to potential investors in a pitchbook, including the value of ongoing, unrealized investments.

How is the "active" part of the multiple determined?

The "active" part refers to the unrealized value of investments that the fund still holds. This value is typically determined by periodic fair value assessments of the underlying portfolio company.

Does this multiple consider fees and expenses?

An Active Pitchbook Multiple, as commonly presented in pitchbooks, often reflects gross performance, meaning it generally does not deduct management fees, carried interest, or other expenses. Investors should always ask for net performance figures to understand their actual returns.

Why is this metric important for investors?

It provides investors with a quick and digestible overview of how much value a fund has created relative to its investments, both from completed exits and from its current holdings. However, it should be considered alongside other metrics like Internal Rate of Return (IRR) for a complete picture.

Can the Active Pitchbook Multiple change over time even without new investments or exits?

Yes, the Active Pitchbook Multiple can change based on changes in the fair value of the fund's active, unrealized investments. These valuations are typically updated periodically (e.g., quarterly) to reflect market conditions or the performance of the underlying portfolio company.