Time-weighted return

A return measure that neutralises the effect of contributions and withdrawals and thus measures the performance of the asset management.

In practice

The time-weighted return is the usual measure for comparing portfolio managers with each other and with benchmarks, because the manager does not control when the family adds or withdraws money. In practice, it is calculated for the sub-periods between cash flows, which are then linked geometrically. In a family office, it is used per mandate and per manager, while the IRR shows the family's own result.

Distinctions and common mistakes

The time-weighted return and the IRR answer different questions and can differ substantially for the same portfolio. A common mistake is to compare the time-weighted return of one manager with the IRR of another, or to calculate it without correct dates for contributions and withdrawals.

Related terms

Internal rate of return

Money-weighted return that takes into account the size and timing of all cash flows – common for private equity and real estate.

MOIC

The ratio of current value plus distributions to invested capital – it shows how many times the capital has been multiplied.

Mentioned in these guides

• TWR or IRR? Which return a family office measuresTime-weighted return (TWR) and internal rate of return (IRR) compared: what each measures, when to use which, a worked example and the meaning for reporting.
• Consolidated wealth overview for the single family officeConsolidated wealth in a single family office: look-through across companies and foundations, one reporting currency, performance and illiquid assets.
• Benchmarks for family wealthWhich benchmark suits family wealth: composite indices, inflation targets, peer comparisons – and how to measure asset managers fairly against them.
• The CIO in a family office: strategy, selection, oversightWhat the CIO in a family office is responsible for: investment strategy, selecting and monitoring managers, risk, reporting and the investment committee.