Time-Weighted Return (TWR)
Time-weighted return measures investment performance independent of cash flow timing, isolating manager skill from investor contribution and withdrawal decisions.
| TWR vs Money-Weighted (IRR) | Difference |
| TWR calculation | Geometric linking of period returns |
| TWR advantage | Neutralizes timing of cash flows |
| TWR use case | Comparing fund managers |
| IRR calculation | Discount rate solving for NPV = 0 |
| IRR advantage | Reflects actual investor experience |
| IRR use case | Evaluating specific investment outcome |
| Example Scenario | Result |
| Property return year 1 | 10% |
| Property return year 2 | Minus 5% |
| TWR | 4.5% (geometric average) |
| If large contribution in year 2 | IRR much lower (caught decline) |
| If large contribution in year 1 | IRR higher (avoided decline) |
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