Net-of-Fee Performance Calculations

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Net-of-Fee Performance Calculations

Andre Mirabelli, Ph.D., Opturo and
Krista Harvey, CFA, CIPM, TIAA

There have been many papers written on net-of-fee returns, but not many written on how the actual numbers for these are calculated. If a portfolio of investments grows, without external flows, from $100,000 to $120,000 in one year, and a fee of $3,000 is paid to the investment manager, this leaves $117,000. Will and should the net-of-fee return be reported as 17% ($17,000 / $100,000)? Not necessarily. This paper is intended to help investment professionals by articulating common and acceptable industry practices as they relate to the calculation of timeweighted returns for a portfolio of investments on a net-of-fee basis.1 Performance-based fee and net-of-fee IRR calculations fall outside of the scope of this paper.

Written by the CFA Society NY’s Performance & Risk Analytics Committee

Net-of-Fee Performance Calculations

Andre Mirabelli, Ph.D., Opturo and
Krista Harvey, CFA, CIPM, TIAA

There have been many papers written on net-of-fee returns, but not many written on how the actual numbers for these are calculated. If a portfolio of investments grows, without external flows, from $100,000 to $120,000 in one year, and a fee of $3,000 is paid to the investment manager, this leaves $117,000. Will and should the net-of-fee return be reported as 17% ($17,000 / $100,000)? Not necessarily. This paper is intended to help investment professionals by articulating common and acceptable industry practices as they relate to the calculation of timeweighted
returns for a portfolio of investments on a net-of-fee basis.1 Performance-based fee and net-of-fee IRR calculations fall outside of the scope of this paper.

Written by the CFA Society NY’s Performance & Risk Analytics Committee

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