Journal of Portfolio Management · Peer-Reviewed Publication

Duration-Adjusted Return on Capital: A Novel Approach to Measuring Private Equity Performance

JournalThe Journal of Portfolio Management
IssueInvesting in Private Markets, Vol. 50, No. 7
Year2024
Pages72–99
Abstract
This paper introduces and formalises the Duration Adjusted Return on Capital (DARC) — a novel performance measure for private equity that applies Macaulay duration to fund contributions, distributions, and NAVs. Unlike IRR, DARC produces a true time-weighted return free of reinvestment assumptions. Unlike PME, it enables consistent aggregation across funds and periods. The methodology replaces the J-Curve with the S-Curve, provides a daily forward yield term structure for private markets, and creates the conditions for investable private equity benchmarks and synthetic risk transfer instruments.

Contribution

The paper establishes DARC as the first measure to satisfy three requirements simultaneously: time-weighting without reinvestment assumptions; consistent aggregation in present-value space; and a forward yield structure embeddable in derivatives and index instruments. Each requirement has been noted in the literature as necessary — none had been jointly resolved until DARC.

Key Findings

Applied to a large sample of private equity funds, DARC yields a materially different picture of performance than IRR — particularly for funds with irregular cash flow timing. The S-Curve model outperforms the J-Curve in capturing the marginal return profile of private fund investments. Duration-based daily NAV estimates show strong reconciliation with quarterly reported values.

JEL Classification

G11 · G12 · G17 · G23 · G24

DARC Duration Private Equity Performance Measurement IRR Time-Weighted Return S-Curve Macaulay Duration Forward Yield Private Market Indices
View in JPM → 2026 SSRN Working Paper → DARC Methodology →