How should I present realized versus unrealized investments?

The eight states a position can be in

Most records use two labels for what is actually eight situations, and the compression is where paper gains start reading as outcomes.

• Realized. Cash or marketable securities actually returned. This is the only category that is not an estimate.
• Partially realized. Some proceeds returned, a stake retained. Both halves need showing, since a partial sale at a good price says something different from a full exit.
• Unrealized, marked at a subsequent priced round. A third party set a price, which is the strongest basis available for an unrealized position and still not an outcome.
• Unrealized, marked at cost. Often the honest answer for a recent investment, and one that reads as discipline rather than as weakness.
• Unrealized, marked at a manager's estimate. Legitimate and the most scrutinised, because the manager is valuing their own work. Say the basis.
• Unrealized, marked from a convertible instrument. Notes and safes carry conversion terms that make a headline valuation misleading without them.
• Written down. An impairment you have taken, which is evidence of a functioning valuation process rather than an admission.
• Written off. Value taken to zero. A record with no write-offs is either very young or not complete, and allocators read it as one of the two.

Valuation dates and basis, which is where records lose credibility

Every unrealized number is an opinion as of a date. Two disciplines carry most of the weight.

State the as-of date on every mark, and use the same date across the whole record. A table blending marks from three different quarters is not internally comparable, and an allocator who spots it will ask what else is inconsistent.

State the basis per position rather than once at the bottom. The international private equity and venture capital valuation guidelines, published by the IPEV Board and endorsed by numerous national associations, are the reference most auditors and administrators work from for fair value in private capital, and naming the basis you used is more credible than asserting a number. Where a valuation is your own estimate rather than a third-party price, say so in the same row rather than in a footnote.

A pre-fund record has no auditor standing behind it, which makes this discipline more important rather than less. Blueprint's page on showing angel, scout, operator, and SPV experience covers what a personal record can and cannot support.

The risk of presenting paper gains as success

This is the single most damaging pattern in a first-time manager's track record, and it is usually accidental.

A portfolio marked up by recent rounds is a portfolio of opinions held by other investors. Those opinions can reverse, and a manager whose narrative rests on them has tied their credibility to somebody else's next financing decision. The correction, when it comes, arrives during diligence for the next fund.

The safer construction is to lead with what is realized, however small, then present unrealized value with its basis, then state what would have to be true for the unrealized value to become realized. Managers consistently underestimate how much credit that last sentence earns.

The disclosure checklist, public and private

Two versions of the same discipline, because a public document and a data room carry different amounts of detail and the same obligation to be accurate.

• Public materials: the split between realized and unrealized, the as-of date, the sample size, whether figures are gross or net, and a statement that unrealized values are estimates that may not be achieved. No position-level valuations without consent, and nothing confidential to a company.
• Public materials: where any performance appears at all, the methodology in one sentence and the fact that past performance does not indicate future results, in the form counsel approves rather than a phrase copied from another fund.
• Data room: the position-level table with entry date, cost, current value, basis, valuation date, and status for every investment, including the ones written off.
• Data room: the valuation policy itself, naming who values, on what basis, how often, and who reviews it.
• Data room: any third-party valuation, audit, or administrator confirmation that exists, since an independent party's involvement is worth more than any wording you choose.
• Both: the same definitions of realized and unrealized, stated once and used everywhere, per ILPA's requirement that a fund be consistent and disclose its methodology.

What the marketing rules require when both appear

For advisers subject to United States marketing rules, gross performance may not be presented without net shown with at least equal prominence, in a format designed to facilitate comparison, calculated over the same period.

ILPA's guidance adds a specific and useful clarification for the realized and unrealized split: where gross performance is shown for the realized and unrealized portions of a portfolio, net does not need to be shown for those portions, but net portfolio performance for the total portfolio is still required under the rule. It also notes that where metrics are calculated with the impact of fund-level subscription facilities, they must be accompanied by metrics that remove that impact.

Those are United States requirements. Other jurisdictions regulate performance communications on their own terms, and the presentation should be reviewed by counsel wherever it will be sent.

What limited partners are testing

Mostly whether the manager values their own work conservatively when nobody is checking.

• Is the realized column populated at all, and if not, does the manager say so plainly?
• Are marks dated, and are all the dates the same?
• Is the basis stated per position, and how many positions rest on the manager's own estimate?
• Are write-downs and write-offs present, or does the record contain only positions that went up?
• Would the administrator, auditor, or valuation provider recognise these numbers?

What a clean presentation does not prove

Separating realized from unrealized proves the record is honestly constructed. It does not make an unrealized portfolio more likely to realize, and it does not substitute for the exits an allocator would rather see.

This page states no view on what proportion of a portfolio should be realized at any point, and publishes no valuation benchmark, because both depend on vintage, stage, and strategy and neither was verified.

This page is educational and general. It is not legal, tax, accounting, valuation, or investment advice. Valuation policy and performance presentation should be reviewed by an auditor, an administrator, a valuation professional, or counsel before materials are used.