Having preached the benefits of money-weighted returns for the past several years, along with a group of comrades, including Steve Campisi, CFA, I’m quite pleased to see that the idea is catching on.

GASB, the U.S. Government Accounting Standards Board, now requires public pension funds to report the internal rate of return (IRR). I was asked to provide some guidance during the directive’s development. One could fully understand why time-weighting was considered, but they wisely saw the wisdom of money-weighting.

Our neighbor to the north, Canada, has a new set of security industry standards that also mandate the IRR.

GIPS(R)’s new initiative to encourage asset owners to comply includes the recommendation for the IRR. Regretfully, I didn’t recommend in my comment letter that this be a requirement: I should have. But, a recommendation, for now, is very good.

What next? Well, there’s plenty of room for more. For example, the GIPS Executive Committee should see the wisdom of mandating the use of the IRR whenever the manager controls cash flows. This is something a few of us have been asking about for some time; actually, dating back to the mid-1990s under the AIMR-PPS(R).

Stay tuned; I’m sure more will follow!