Vintage Year
The year in which a fund first delivers investment capital — the marker used to compare private funds that started investing at the same point in the economic cycle.
In plain language
Two venture funds that each made 15% a year are not equally skilled if one bought its companies at the top of a boom and the other at the bottom of a slump. Private funds have to be compared with funds that started at the same time. The vintage year is the label that makes that possible.
The workbook borrows Investopedia's definition: "the milestone year in which the first influx of investment capital is delivered to a project or company". In an AIF context, it says, the years during which the fund is in initial investment mode are the vintage years.
Timing matters because of entry prices. If a fund's vintage years coincide with a boom, entry valuations are high and overall returns fall. If they fall at the bottom of the business cycle, favourable entry pricing can magnify returns.
How it works
In performance measurement. The vintage year marks the start of the cumulative return on an investment, because returns vary with each phase of an investee company's growth cycle. In the J curve discussion, fund performance metrics in the vintage years differ sharply from those in the maturity years, and during the vintage years the fund's value is largely captured in RVPI.
In benchmarking. SEBI's disclosure-standard circulars required industry benchmarking of AIF performance. For Category I and II AIFs, the benchmarking agencies provide benchmarks based on vintage years, so that every sub-category of fund is compared with funds having a similar first close timeline. Those benchmarks use pooled IRR, DPI, RVPI and TVPI.
The operational guidelines the workbook reproduces:
- benchmarking is done half-yearly, on data as on 30 September and 31 March;
- AIFs and schemes that have completed at least one year from first close report data;
- 31 March data must be audited; 30 September data may be unaudited;
- AUM for benchmarking is the value of total capital drawn down; reporting is on pre-tax NAV; results are reported in INR and USD.
The workbook names three benchmarking agencies appointed by IVCA — CRISIL, NSE and Preqin.
A worked example
Illustrative figures. Ms Shah is comparing two Category I venture funds for a Rs 1 crore commitment.
| Fund A | Fund B | |
|---|---|---|
| First close | 2019 | 2021 |
| Net IRR to date | 17% | 11% |
| Vintage-year benchmark (median) | 20% | 8% |
| Position against its own vintage | 3 points below | 3 points above |
On raw IRR, Fund A looks clearly better. Against funds of the same vintage, it is the weaker manager: 2019-vintage funds bought before a strong market and the median of that cohort did 20%. Fund B invested in a costlier market and still beat its cohort's 8% median.
The benchmark report Ms Shah is shown must come from a benchmarking agency. Where a PPM or marketing material mentions past performance, SEBI requires the performance-versus-benchmark report provided by the benchmarking agency to be provided alongside it.
Why NISM asks about it
Chapter 6 (Risk and Return — Investor and Fund Perspective) defines vintage years in a footnote to the J curve at 6.7 and uses the term in the life-cycle behaviour of TVPI and RVPI. Chapter 8 (Fund Due Diligence — Investor Perspective) explains vintage-year benchmarking for Category I and II AIFs at 8.6, including the SEBI operational guidelines. Chapter 10 (Fund Monitoring, Reporting and Exit) uses "vintage funds" in fund reporting. Expect questions on why benchmarks are grouped by vintage, on the half-yearly dates, and on the one-year-from-first-close threshold.
Common exam traps
- The workbook uses "vintage" in two senses that do not line up. Chapter 6 defines the vintage years as the years the fund is in initial investment mode. Chapter 10, on fund reporting, says "vintage funds are those that have completed investments and mature funds are closer to harvesting their portfolio". Learn both: for the metrics and benchmarking questions use the Chapter 6 meaning; for a question on what fund reports should cover, the Chapter 10 wording is what is being tested.
- Benchmarks for Category I and II are grouped by vintage year using first close, not by the date of the PPM filing or final close.
- Only schemes at least one year past first close report to benchmarking agencies.
- Half-yearly, not quarterly — 30 September and 31 March, with March data audited.
- A boom-year vintage tends to depress returns through high entry valuations; a trough-year vintage tends to magnify them.
- The three agencies named are CRISIL, NSE and Preqin, appointed by IVCA — not SEBI itself.
Where this is taught
Free preparation for NISM Series XIX-ARelated terms
- Benchmarking AgencyAn agency notified by an AIF association covering at least 33% of AIFs, which collects AIF performance data and publishes industry benchmarks and benchmark reports for individual funds.
- J CurveThe shape of a private fund's returns over its life: negative in the early investing years because of fees, expenses and unripened investments, then rising steeply as exits and distributions arrive.
- Residual Value to Paid-in CapitalThe unrealised multiple: the estimated fair value of a fund's unsold investments divided by paid-in capital. It dominates early in a fund's life and falls to zero once every investment is exited.
- Total Value to Paid-in CapitalA fund's investment multiple: cumulative distributions plus the residual value of unsold investments, divided by paid-in capital — equivalently, DPI plus RVPI.
- First CloseThe date an AIF scheme declares it has raised enough commitments to proceed — the point from which tenure, management fees and set-up cost amortisation all start running.
- Internal Rate of ReturnThe rate at which the present value of an investor's cash outflows equals the present value of inflows — an annualised return that, unlike ROI, accounts for when each cash flow happened.
- Performance BenchmarkingSEBI's mandatory regime under which every AIF scheme past one year from first close reports cash flow and valuation data half-yearly so that industry benchmarks can be built and each scheme measured against them.