I am conducting a GIPS(R) (Global Investment Performance Standards) verification for a client who asks their clients to provide a “personal benchmark.” That is, the return the client hopes to get on an annual basis. Assuming there will be cash flows during the year, how does this factor into the asset management firm’s reporting and measurement?

First, we must realize that the “personal benchmark” is a money-weighted benchmark; it can’t be time-weighted. And therefore to provide for comparison purposes a portfolio return that’s time-weighted is clearly a matter of “apples and oranges.” What else could it be? And while this information has some value to the manager, they’re managing to achieve a superior time-weighted return, working around the flows that come in and out of the portfolio. If the client makes some bad timing decisions which result in a “personal return” below their benchmark, who do we blame?