I recently suggested to a plan sponsor that they consider using money-weighting as well as time-weighting, pointing out that since they control the cash flows, such an analysis would provide some value. Well, today I got an email which offered the following:

It appears that you believe a plan sponsor has 100% control of their cash flows, but this is not true. At the total fund level, the drivers of cash flows are contributions and retirements, and these are impacted by pension legislation and other factors. Within the asset classes, things like the asset allocation study and board policy (acceptable ranges within each asset class) are key drivers affecting allocation changes.

I won’t argue that the external cash flows may be controlled by other parties, but the allocations across sectors, as well as the selection of the managers are controlled by the plan sponsor, even if the board is involved in these decisions. Thus, money-weighting has value here, too. I guess one question to ask: “what does a time-weighted return tell us at the fund level?” Your thoughts are invited.