If you want to frustrate a limited partner, there are plenty of ways to do it, but a favorite of mine is comparing a fund's quarterly IRR to an LP's conviction about re-upping. Sure, these measures are both quoted as percentages, with increments of 1 basis point, but, as the LP will certainly point out, that's all they have in common: quarterly IRR is equal to an annualized return rate calculated from a snapshot of cash flows and net asset value at a single point in time, and re-up conviction represents a cumulative narrative assessment built over years of quarterly interactions, track record, and trust; these are very different things!The stock/flow distinction originates in systems dynamics but maps cleanly onto fund communications: a stock is any accumulated quantity measured at a point in time (NAV, IRR), while a flow is a rate of change or narrative that contextualizes movement over time.
If there were a futures market for LP conviction — a way to trade on the probability of a re-up — you might be able to bridge the two. But in the absence of that, the comparison is nonsense. They are simply different kinds of things.
The specific objection an LP will raise is that you are comparing a stock to a flow. LPs often use jargon that has a completely different meaning in public markets, perhaps as part of some conspiracy by Big Compliance to ensure nobody actually reads the quarterly letter.
To put it simply, a flow is any narrative that contextualizes change over time, and a stock is the snapshot of accumulated data at a point in time. So your fund's NAV is fairly constant from quarter to quarter, even as the median fundraising timeline stretches to 22 months.McKinsey's 2025 Global Private Markets Report documents the continued elongation of fundraising timelines, driven by LP consolidation into fewer, larger relationships and heightened due diligence requirements.
The full picture of a fund, however, is not just the stock of NAV. It is that number plus something forward-looking: the LP's conviction, shaped by the quarterly narratives that contextualize those flows. The stock tells you where you stand. The flow tells the story of how you got there, and where you might be going.
Most Reinvestment Decisions Aren't About Returns §
But wait! That full picture is mostly the sum of the future flows. We're comparing stocks to flows all the time. In fact, since LP re-up decision-making volume is far higher than actual fund performance variance (i.e., nearly 80% of LPs declined to reinvest with one or more current managers in the past twelve months, far outpacing the number of funds with genuinely poor returns), then by sheer decision volume, comparing stocks to flows is the overwhelming majority of LP capital allocation.Coller Capital's Winter 2024 LP Barometer — one of the longest-running surveys of institutional investors in private markets — found that pass rates on re-ups have accelerated even among funds with above-median performance.
There's only one problem: the funds that survive this selection and the funds that don't aren't separated by returns; quite the opposite. Analysis of 20 emerging manager fundraises in 2023–2024 found that 70% of successful funds had a named anchor LP before they formally launched.The LP Blueprint study analyzed both successful and failed emerging manager fundraises. The single strongest predictor of success was not track record or strategy differentiation, but whether the GP had pre-committed an anchor relationship before going to market.
Zero percent of the failed funds had one. The successful managers had spent six to twelve months building that anchor relationship before announcing, which is to say, they'd been running a flow strategy (sustained communication, narrative relationship-building) while the failed funds tried to cold-start with a stock (a performance snapshot and a pitch deck).
The anchor LP wasn't impressed by the numbers alone. The numbers were necessary, but not sufficient. What impressed the anchor was the accumulated evidence that this GP thinks clearly, communicates honestly, and will be a good steward of capital over a decade. You can't build that in a single meeting. You build it the same way you build any stock: through a sustained accumulation of flows, emails, memos, coffee conversations, and yes, quarterly letters, that compound into something an LP can underwrite.
The Short Term vs. The Long Term in LP Conviction §
Over sufficiently long periods, most of the movement in LP re-up rates is driven by actual realized returns (in a DPI-centric frame, 21% of global LPs now cite DPI as critical, up from 8% three years ago, it's the variable whose rise is unbounded; narrative quality, communication frequency, relationship warmth can't rise forever the way compounded distributions theoretically can).DPI (Distributions to Paid-In) measures actual cash returned to LPs relative to contributed capital. Its rise as the defining metric reflects LP fatigue with paper markups that never materialize into liquidity.
Over short periods, however, the dynamics invert. Changes in the narrative framing dominate. It becomes difficult for a fund to increase its intrinsic value by a meaningful amount in a single quarter, but LP conviction levels fluctuate by that much all the time. In other words, the entire exercise of converting flows into stocks rests on a simple fact: doing it right is hard, and the conversion rate is perpetually up for debate.
And for emerging managers, that conversion rate is existential. First-time managers who raised funds in 2021–2022 are raising fewer second funds than ever before. When you lack a long track record, when your realized returns are thin or nonexistent, the quarterly letter is not just an update. It is your Fund II pitch.
The pitch deck is a stock: a one-time snapshot designed to impress. The quarterly letter is a flow: a recurring signal designed to build trust. And the flow is what determines whether the stock ever gets updated.
Consider the position of a first-time GP with a two-year-old fund and no exits. They have exactly one asset that compounds: the narrative trust they build, quarter by quarter, in their communication with the people who will decide whether Fund II happens. The quarterly letter is the only piece of writing most GPs produce regularly. It's also the only one that goes to the people who decide their economic future.
The effort mismatch is staggering.
Most GPs spend weeks on their pitch deck and hours (if that) on the quarterly letter that's supposed to sustain the relationship the pitch deck started. The pitch deck is a stock: a one-time snapshot designed to impress. The quarterly letter is a flow: a recurring signal designed to build trust. And the flow is what determines whether the stock ever gets updated.
Why Narrative Changes Expectations §
Not all GP-to-LP communication fits neatly into the stock or flow bucket. Some of it occupies a suspicious intermediate zone: partly one, partly the other. Consider a study by Matera that analyzed 35,000 earnings call transcripts and found that varying narrative emphasis, more confident, uncertain, or optimistic, while keeping all numbers identical, significantly changed analyst expectations.Matera's study isolated narrative framing from financial content by comparing transcripts with identical quantitative disclosures but different qualitative tone. The effect on analyst expectations was statistically significant across all tone dimensions.
The trick here is that some of a quarterly letter's impact comes from the numbers themselves, and some from the narrative framing, which also drives how those numbers are interpreted. But that narrative framing represents a change in the LP's assessment of the value of future flows, which is not itself a flow.
Whether a GP's quarterly letter is better understood as a reassessment of a stock or as an accumulation of a flow is a difficult question. The answer probably comes down to the nature of the activity behind it.
If the process is repeatable and mechanical (something that can be templated, automated, or executed on autopilot), then the letter is merely a reporting exercise. It updates the record but adds little new substance. It is a stock, refreshed. Just like a piece of genuine analysis has value because it reduces ambiguity, uncertainty, or cognitive labor of some kind, so do the accumulated trust signals in a well-written quarterly letter.
The Power Law of GP Communication §
In any given fundraising cycle, some of the best-performing GPs will be the ones who are grinding out a bit of narrative coherence each quarter. But some of them will be GPs whose five-year letter archive looks something like this: boilerplate, boilerplate, boilerplate, boilerplate, and then one memo that reads like Howard Marks' reasoning through uncertainty in real time.
In other words, they're running a communication strategy with power law returns. Most quarters, the letter is forgettable, but occasionally it produces something remarkable. In that case, the "flow" of their communication is probably best approximated by compounded trust over many quarters, not by a single brilliant letter, since in any given fundraising cycle, different GPs will achieve those peak moments of insight.
Another way of looking at this is that the cohort of "best-communicating GPs" is not necessarily stable from cycle to cycle, and the names that do appear frequently are from managers who've accumulated a lot of LP trust and are growing it gradually but inexorably.
This is where Marks' line from his February 2026 memo, which he wrote while half the industry was feeding their quarterly updates to Claude, comes in handy:
"I could have saved myself a lot of time by asking Claude to write this memo, but I decided not to, because I consider putting words on paper a big part of the fun."
That single sentence captures the non-repeatable, judgment-limited end of the spectrum. Marks treats the writing itself as the thinking, not as a distribution vehicle for thoughts he already had. His memos are read by people who aren't even Oaktree investors. They've become the firm's most effective marketing asset without ever being marketed. The quarterly letter doesn't have to be a quarterly letter. It can be the firm's intellectual identity.
I keep coming back to how odd the incentive structure is here. The best investor letters share a quality with the best essays: they sound like someone thinking, not someone reporting. The difference comes down to a single question. Did the GP sit down and ask, "What do I actually believe about what happened this quarter?" Or did they ask, "What are the numbers, and how do I frame them positively?"
One question produces a letter worth reading. The other produces a letter that gets filed.
Template letters are not difficult to detect, not because of any technical analysis, but because they feel generic. The reader's brain registers "this was written for no one in particular" and files it accordingly.
This continuum also shows up in GP reporting metrics. Most funds report some kind of performance number, and over time, those metrics have gotten increasingly precise. Early-vintage funds talked about their total IRR since inception (a stock), while post-GFC managers talked up their TVPI, a harder number to game than IRR. But with one in three GPs ranking fundraising as their top challenge, the fund that reports the harder metric is eventually going to win if that transparency persists.TVPI (Total Value to Paid-In) combines realized distributions and unrealized NAV. While harder to game than IRR, it can still mask the absence of actual liquidity events — a problem DPI exposes directly.
Now, it's increasingly common for funds to discuss DPI and sometimes provide portfolio-level metrics, such as per-company cash-on-cash multiples. These more precise metrics are flowier than the previous iteration (a TVPI is mostly a flow, but compared to DPI, it's stockier; it's the cumulative total of realized and unrealized value over the fund's life, and one trend it can obscure is when GPs keep reporting healthy paper markups but no longer distributing actual cash back to LPs). This shift has migrated to public-market shareholder letters too, where the emphasis is moving from annual performance summaries toward real-time strategic reasoning, from telling shareholders what happened to showing them how you think.
Greg Abel's first post-Buffett letter to Berkshire shareholders made this explicit:
"We concentrate on quality, not frequency. If a significant issue arises, you will hear from me, but it will not be through quarterly commentary, given our long-term horizon."
That is a pure flow strategy: communicate when there's a signal, not on a compliance schedule. Abel is saying, in effect: I won't waste your attention with boilerplate, but when I do write, it will be because something actually matters.
Contrast this with the direction of industry standards. In January 2025, the ILPA released updated reporting standards pushing for more granular, standardized quarterly reports. But standardization solves the compliance problem, not the narrative problem. You can follow every ILPA guideline and still produce a letter that your LPs skim in 30 seconds and forget. The metrics get more precise, the formatting gets more standardized, and the thing that actually moves conviction, the GP's voice, judgment, and willingness to reason through uncertainty on paper, remains optional.The ILPA's updated standards address data consistency and comparability across funds — a genuine problem for LP due diligence. But they are silent on narrative quality, which is the dimension that actually differentiates one GP's communication from another's.