Episode Overview

Podcast: How I Invest with David Weisburd
Episode: E310: The DPI Problem Plaguing Venture Capital & PE
Published: February 23, 2026

In this episode, host David Weisburd interviews Alex (former CIO of Aberdeen Investments Ireland with deep experience at Morgan Creek, J.P. Morgan, and Cleveland Clinic) to unpack the "DPI problem" currently troubling venture capital and private equity. The conversation explores why distributions to LPs have dropped, the growing illiquidity in private markets, the role of continuation vehicles (CVs), secondaries, the implications for fund modeling, and the evolving use of AI in investment offices. The discussion is rich with practical perspectives for institutional allocators: endowments, pensions, foundations, and family offices.

Key Discussion Points & Insights

1. The Central Challenges Facing LPs

• Top Three Issues Cited by LPs:
  • Lack and changing nature of distributions from private asset funds ("DPI problem")
  • Rapid rise of AI tools and their potential to transform or replace allocator roles
  • Assessing "alpha fees for beta performance" using factor models
    (00:19)

2. The DPI (Distributions to Paid-In) Decline

• Historical DPI Distributions:

  • Traditionally, annual distribution yield hovered around 25% of NAV (per MSCI Burgess data).
    (01:39)

• Recent Trends:

  • From 2020-2025, yields dropped to around 12% (with a low of 9%).
  • Impact: Allocators' pacing models break down—they’re forced to sell liquid assets, amplifying the “denominator effect” (private assets become larger share of total portfolio).
  • Memorable Data Point:

    "Vintage 2020 and vintage 2021 funds, about half, 45%, have a DPI of less than 0.1x."
    (03:44, Alex)

• Broader Implication:

  • The liquidity from IPOs and sales is waning—“private is the new public." Top firms like SpaceX and OpenAI are staying private, siphoning off traditional distribution avenues.
    (03:47, 08:18)

3. The Downward Spiral of Illiquidity

• Quote:

  "The portfolio grinds to a halt. You’re making commitments to private asset funds, your cash flow model is telling you…to expect distributions...If you’re not getting those, you can’t support spending policy needs. It becomes a downward spiral of illiquidity."
  (06:27, Alex)

• Continuation Vehicles (CVs):

  • Funds increasingly use CVs instead of distributing cash or shares.
  • Controversy: Some LPs distrust the marks. Example: Abu Dhabi Investment Corporation lawsuit against a fund for marking an asset too conservatively in a CV.
    (08:18, 11:57)

• Secondaries:

  • LPs may sell stakes for liquidity but typically at discounts:

    “You're expecting 80-95% [of NAV]...but older/lesser funds may fetch only 50-60%.”
    (10:02, Alex)

  • Downside: Political/reputational risk—souring future fundraising relationships.
    (08:25, 10:02)

4. Relationships, Access, and Industry Structure

• Access Class, Not Asset Class:

  • “Private assets, particularly venture capital and private equity, are an access class instead of an asset class."
    (14:44, Alex)

  • Top 10 PE firms capture over 40% of fundraising; reputation and access dictate opportunity.

  • Lawsuits are rare—risk of lost access outweighs many disputes.

• Allocator Best Practices with CVs:

  • Must assess whether illiquidity aligns with portfolio goals

    "Do they have the ability to withstand the illiquid nature of this continuation vehicle?"
    (16:38, Alex)

5. Borrowing and Leverage: Why Not Increase Liquidity?

• Why Don’t Allocators Borrow Against Private Holdings?
  • Legal/IP statement restrictions
  • Existing institutional debt capacity
  • Caution: “Almost all bubbles don't pop because of valuations. Bubbles almost always pop because of leverage.”
    (19:39, Alex)

6. Is This the “New Normal”?

• Duration Drifts:

  • IPO timelines have stretched from expectations of 4 (1990s) to ~14 years.

    “Four years used to be the expected timeline to go from private to public. … We've gone from four years to 14 years. This kind of feels like a new normal.”
    (22:18, David)

• Implications for Allocators:

  • Pacing models from the “Yale model” era must be updated for longer cash lock-ups.
  • Only private credit maintains traditional distribution profiles (22-24%).
    (23:22, Alex)

7. Private Marks and Career Incentives

• Valuation Practices:

  • Most established firms exercise conservative third-party valuation.
  • “Emerging managers” have more aggressive marks, aiming to look better for fundraising. (28:09, David & Alex)

• Pressure for Mark-Downs:

  • LPs rarely press for big mark-downs—would mean admitting lower returns to their own boards/trustees, possibly risking their jobs. (29:01, Alex)

• Principal–Agent Issues:

  • Short LP tenure (5-7 years) vs. fund lives (10+ years); often, the person making the commitment is gone when a fund matures.
  • Misaligned incentives in performance compensation based on unrealized, not realized, performance. (30:23, Alex)

8. The Role of AI in Allocator Offices

• Great Quote:

  “AI tools can be used to outsource work, but not to outsource thinking.” — Mike Trotsky of Mass Prem (cited by Alex, 33:09)*

• Where AI Helps:

  • Resumes
  • Operational efficiency (meeting notes, emails, file sorting)
  • But: Core analytical judgment remains a human skill.

• Factor Model Analysis:

  • Most allocators rely only on CAPM beta. Nearly none use five-factor models (Fama-French, etc.) to determine true alpha.

    “Nobody’s doing this. They are relying just on the CAPM beta and attenuating to alpha."
    (35:37, Alex)

Notable Quotes & Memorable Moments

• On the Denominator Effect & Pacing Model Breakdown:

  “Private assets are getting to become a larger and larger and larger portion of the total portfolio. The only thing the allocator can do then is to sell the liquid assets, which have been performing well.” (02:06, Alex)

• On Secondaries and Politics:

  “It can be damaging politically…you may not get the call about the next fundraise.” (08:25, Alex)

• On LP-GP Trust:

  “The other side…is we could really use those distributions.” (13:13, Alex)

• On Being an Access Class:

  “Private assets…are an access class instead of an asset class.” (14:44, Alex)

• On AI & Allocators:

  "You can outsource a lot of work. But we can’t just offload the most important part…which is the analysis side." (33:21, Alex)

• On Marking Private Assets:

  "Fidelity sometimes will have a very stark difference…from how Silicon Valley may be marking the exact same company. But most of the companies are keeping their heads above water because ultimately they want to maintain what is their most important asset…their reputation." (27:13, Alex)

Timestamps for Key Segments

• 00:00–01:25 — Major issues for LPs
• 01:39–03:44 — Decline in DPI/distribution yields: 25% → ~10%
• 06:27–08:18 — Downward spiral of illiquidity explained
• 08:18–11:17 — Solutions: secondaries, CVs, lawsuits, and the political calculus
• 14:13–15:34 — Private funds as "access class"; reputation-driven market
• 16:30–17:33 — CV best practices for LPs
• 19:39–21:18 — Why allocators don't borrow against private book
• 21:26–23:14 — "Private is the new public," new IPO timeline reality
• 23:22–24:27 — Adjusting models for new normal; only private credit is distributing as expected
• 28:09–29:01 — LP/GP marking practices; career and agency risks
• 33:09–34:58 — AI tools in allocator offices
• 35:10–36:36 — Five-factor model and true alpha vs. beta analysis

Summary Takeaways

• DPI is down, public exits are rare, and illiquidity is the new normal.
• LPs must update expectations and pacing models accordingly.
• Private market access and long-term relationships matter more than ever.
• Secondaries and CVs offer liquidity but entail trade-offs—political, reputational, and discount to NAV.
• AI is a powerful tool for efficiency, but investment judgment is irreplaceable.
• Factor analysis is underused; reliance on basic models over deeper factor exposures is widespread.
• The illiquidity premium may return—if LPs are disciplined—but the risks and incentives in private markets have fundamentally shifted.

For institutional investors and LPs navigating today's private markets, this episode is a timely and candid masterclass in the shifting mechanics of venture capital and private equity allocation, liquidity, and performance measurement.