How to assess a pension fund’s performance

Posted by David Spaulding - July 31, 2017 - asset owners, GIPS, Global Investment Performance Standards, Investment Performance Guy, IRR, money-weighted return, pension funds, performance measurement, time-weighted return, time-weighting

This is the time of year when many pension funds report their returns for the prior fiscal year. And often, the reported returns were calculated using a time-weighted method. But, is this appropriate? Or, perhaps, is more needed? In my way of thinking, pension funds, as well as other asset owners, should have two targets, […]

When the labels don’t matter; e.g., time-weighting

Posted by David Spaulding - June 16, 2017 - geometric linking, internal rate of return, Investment Performance Guy, IRR, money-weighted return, money-weighting, time-weighted, time-weighted return, time-weighting

Sometimes, the labels don’t matter We just finished PMAR Europe 2017, an event that we felt was a huge success. And, as I often do, I made an attempt to interject a bit of humor from time-to-time. In one case, the “spark” behind it was one of the tea selections that was available: it was labeled […]

What question does the GIPS for Asset Owners composite return answer?

Posted by David Spaulding - May 25, 2017 - asset owners, GIPS, Global Investment Performance Standards, internal rate of return, Investment Performance Guy, IRR, performance measurement, time-weighted return, time-weighting, TWR

The revised GIPS for Asset Owners guidance statement hasn’t yet been finalized, but we can pretty much expect that the time-weighted composite return requirement will remain. At a recent NYSSA (New York Society of Security Analysts) GIPS program, that I had the pleasure to speak at, I asked what might be considered an unfair or trick question: […]

A bit of trivia: what does “time-weighted” mean?

Posted by David Spaulding - October 26, 2016 - BAI, Bank Administration Institute, Investment Performance Guy, performance measurement, time-weighted, time-weighted return, time-weighting

Why are time-weighted returns called time-weighted? Before I answer this question, it might help to explain where the terms “time-weighting” and “time-weighted” come from. It’s not what you may think. No, Peter Dietz, who gave us the “Original Dietz” as well as the “asset-weighted Dietz” (aka, “Modified Dietz”) formulas was not the one who coined this […]

Why it’s okay to be “inconsistent” when reporting rates of return

Posted by David Spaulding - June 14, 2016 - Investment Performance Guy, money-weighted return, money-weighting, rates of return, time-weighted return, time-weighting

I recently conducted a software certification for a software vendor. I found some issues with their application of rates of return, and we’ve been going back-and-forth on it. One issue that arose was my belief that money-weighting is the appropriate approach for subportfolio rates of return [I should point out that this isn’t a requirement […]

Performance with Leverage, Part I

Posted by admin - September 21, 2013 - cash basis return, CIPM, CIPM Exam Tips & Tricks, CIPM Principles, GIPS, levered return, margin return, rate of return, real estate, return measurement, time-weighted return, use of leverage

Leverage can be a confusing topic, so I figured it is worth covering in a few blog posts. In this first post, we’ll deal with return calculations for portfolios that employ leverage. Leverage is the use of borrowing, typically with an intent to amplify investment gains (and thus, returns). The use of leverage is also […]

Common Themes: “Dietz-Style Equations”

Posted by admin - September 20, 2013 - CIPM, CIPM Exam Tips & Tricks, CIPM expert, CIPM formulae, CIPM formulas, CIPM Principles, estimated time-weighted return, Modified Dietz, Original Dietz, return measurement, time-weighted return, true time-weighted return, TWR

For today’s post, I’d like to review some of the “Dietz-style” formulae we use to calculate true time-weighted return and estimated time-weighted return. I’ve never actually seen the formulae presented this way, but hopefully doing it in this fashion will help candidate see that we are using essentially the same basic formula in all of […]

GIPS and return calculations: TWR vs. IRR – When Do We Use Each?

Posted by admin - September 10, 2012 - CIPM, CIPM expert, GIPS, internal rate of return, performance measurement, SI-IRR, since inception internal rate of return, time-weighted return

CIPM Expert Level candidates must know what return calculations are required by the Global Investment Performance Standards (GIPS(r)), and in which circumstances. Most of the time, time-weighted return (TWR) is required, but in some cases a since inception internal rate of return (SI-IRR) must be used. But what are the specifics? Here is a breakdown: […]

Why Don’t We Annualize Returns of Less Than One Year?

Posted by admin - August 6, 2012 - annualization, CIPM Exam Tips & Tricks, CIPM expert, CIPM formulae, CIPM Principles, geometric linking, GIPS, time-weighted return

Most performance analysts have heard it said that we should never annualize returns of less than one year. Some may also be aware that GIPS provision I.5.A.4 (2010 edition of GIPS) forbids compliant firms from annualizing returns for periods of less than a year? But why shouldn’t this be done? Certainly, we could do it […]

Why Do We Call it “Time-Weighted?”

Posted by admin - July 25, 2010 - CIPM, CIPM Principles, time-weighted return

Recently, my boss David Spaulding commented regarding the origin of the term “time-weighted return.” The CIPM curriculum at the Principles Level gives a description as to the origin of the name. Unfortunately, an original source is not cited. But, I remind candidates of this description given in the curriculum, as they are responsible for knowing […]