A New Measure for the Investment Management Industry: Time- & Money-Weighted Return (TMWR)

Current industry performance reporting standards require either the Time-weighted Return (TWR) or Internal Rate of Return (IRR), or both, depending on the asset class or investment vehicle. This makes comparison of performance results across managers, investors, and asset classes challenging, not to mention confusing – which one is right? This paper proposes a new performance measure called the Time- & Money-Weighted Return (TMWR) that combines the best features of each. The new TMWR starts with the single period returns of the TWR, which are based on actual results, and adds a dollar-weighting mechanism similar to the IRR to calculate an annualized return that is more transparent, meaningful, and comparable for all asset classes, managers, investors, and industry benchmarks.