When to Use Time-Weighted Return (TWR) vs. Money-Weighted Return (MWR)

Sean P. Gilligan, CFA, CPA, CIPM
Managing Partner
December 29, 2020
15 min
When to Use Time-Weighted Return (TWR) vs. Money-Weighted Return (MWR)

There are two types of returns investment managers use to report the performance of their strategies: Time-Weighted Returns (“TWR”) and Money-Weighted Returns (“MWR”). The most common MWR is the Internal Rate of Return (“IRR”). Here we take a look at both TWR and MWR to help you understand when each method should be used and why.

The key difference between the two methods is that:

  • Time-Weighted Returns REMOVE the effect of the timing and amount of external cash flows.
  • Money-Weighted Returns INCLUDE the effect of the timing and amount of external cash flows.

Because of this, money-weighted returns represent the actual return received by the investor, while time-weighted returns represent the return achieved by the investment manager after removing the effect of external cash flows.

But when is it appropriate to use one over the other? Because MWRs reflect the investor’s actual returns, it may seem like the best method to use in all situations. However, if the purpose of reviewing the performance is to evaluate the portfolio manager’s discretionary management, we do not want decisions made by the investor to affect the results. The most appropriate methodology to use to evaluate the portfolio manager depends on who controls the external cash flows (contributions and withdrawals) from the portfolio.

Investor-Driven Cash Flows

When the timing and amount of external cash flows are controlled by the investor, investor-driven decisions impact the return. To present returns that allow investors to evaluate a manager’s discretionary management, TWR should be utilized to remove the effect of these investor-driven decisions. Because the effects of cash flows are removed, a TWR doesn’t penalize or benefit a portfolio manager’s performance for contributions or withdrawals that the manager did not control.

Investment Manager-Driven Cash Flows

When the investment manager does have control over the timing and amount of external cash flows (e.g., private equity funds where the investment manager has control over capital calls and distributions), their effects should be included in the evaluation of the manager’s performance. An MWR, which includes the effect of timing and amount of external cash flows, would therefore appropriately penalize or benefit a portfolio manager for contribution and withdrawal decisions that were part of their discretionary management.

External Cash Flow Impact on Returns

Without external cash flows, TWR and MWR are equal. When external cash flows (and volatility) are present, the results will differ.

The following are examples of how the MWR and TWR will differ under different market scenarios:

  1. If a contribution is made and then the portfolio has subsequent performance that:
    • SHIFTS POSITIVELY – MWR > TWR (investor added money just before the upswing)
    • SHIFTS NEGATIVELY – TWR > MWR (investor added money just before the decline)
    • REMAINS STEADY – TWR = MWR (investor added money during a period without volatility)
  2. If a distribution is made and then the portfolio has subsequent performance that:
    • SHIFTS POSITIVELY – TWR > MWR (investor withdrew money just before the upswing)
    • SHIFTS NEGATIVELY – MWR > TWR (investor withdrew money just before the decline)
    • REMAINS STEADY – MWR = TWR (investor withdrew money during a period without volatility)

To help visualize how this works, below are three examples. For the sake of simplicity, we assume the portfolio perfectly replicates the index. The line on the graphs demonstrates the index return stream for the performance period while the filled in area represents the amount of capital invested during each segment of the period. Since TWR removes the effect of the external cash flows, the TWR will approximately equal the index return while the MWR will be impacted by the amount of capital invested for each segment of the performance period.

Example 1: A portfolio with a beginning value of $100k has a steady return of 10% without any volatility for the full period (scenarios with and without external cash flows):

Steady return - no external cash flows.
No External Cash Flows and no volatility:
TWR = 10% and MWR = 10%
Steady return - large external contribution.
$50k ADDED at Mid-Point and no volatility:
TWR = 10% and MWR = 10%
Steady return - large external distribution.
$50k REMOVED at Mid-Point with no volatility:
TWR = 10% and MWR = 10%

The TWR and MWR is equal for all of these scenarios because there is no volatility. With a steady return stream, there is no market timing that would make external cash flows cause a difference between the TWR and MWR.

Example 2: A portfolio with a beginning value of $100k has a 10% increase, but subsequently declines to end the period at the same level at which it began.

Positive return with subsequent loss - no external cash flows
No External Cash Flows:
TWR = 0% and MWR = 0%
Positive return with subsequent loss - large external contribution
= $50k ADDED at High Point:
TWR = 0% and MWR = -3.63%
Positive return with subsequent loss - large external cash distribution
$50k REMOVED at High Point:
TWR = 0% and MWR = 6.04%

The TWR is 0% for all scenarios because the strategy lost all of its initial gains to end up back at the starting point.

The MWR is negative when adding money at the high point because in this scenario the capital base is smaller while the strategy is performing positively and larger when the strategy is performing negatively.

The MWR is positive when removing money at the high point because in this scenario the capital base is larger while the strategy is performing positively and smaller when the strategy is performing negatively.

Example 3: A portfolio with a beginning value of $100k has a 10% decrease, but subsequently increases to end the period at the same level at which it began.

Negative return with subsequent gain - no external cash flows.
No External Cash Flows:
TWR = 0% and MWR = 0%
$50k ADDED at Low Point:
TWR = 0% and MWR = 3.71%
$50k REMOVED at Low Point:
TWR = 0% and MWR = -5.91%

The TWR is 0% for all scenarios because the strategy gained back all of its initial losses to end up back at the starting point.

The MWR is positive when adding money at the low point because in this scenario the capital base is smaller while the strategy is performing negatively and larger when the strategy is performing positively.

The MWR is negative when removing money at the high point because in this scenario the capital base is larger while the strategy is performing negatively and smaller when the strategy is performing positively.

Criteria to Determine When MWR is Appropriate

Ultimately, investment managers should be evaluated based on TWR unless specific criteria are met, in which case MWR is more appropriate. The criteria[1] for using MWR includes:

The investment manager has control over the timing and amount of external cash flows and the investment vehicle has at least one of the following characteristics:

  • Closed-end
  • Fixed life
  • Fixed commitment
  • Illiquid investments as a significant part of the investment strategy

MWR vs TWR for GIPS

The use of money-weighted returns in GIPS Reports instead of time-weighted returns has broadened under the 2020 edition of the Global Investment Performance Standards (“GIPS”). All firms can show MWRs in addition to TWRs if they wish to do so; however, if a firm wishes to replace its TWR with MWR, the criteria listed in the prior section must be met. For more information on these requirements, please see Question 10 of Longs Peak’s GIPS Compliance FAQs.

For more information on how to present performance information in compliance with the GIPS standards, see our recent article on updating GIPS reports to comply with the 2020 edition of the GIPS standards.

If you have questions about calculating investment performance or GIPS compliance, please contact us or email Sean Gilligan at sean@longspeakadvisory.com.

[1] Global Investment Performance Standards (GIPS®) – For Firms, Fundamentals of GIPS Compliance, Provision 1.A.35, pages 5-6.

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Valuation Timing for Illiquid Investments
Explore how firms & asset owners can balance accuracy & timeliness in performance reporting for illiquid investments.
June 23, 2025
15 min

For asset owners and investment firms managing private equity, real estate, or other illiquid assets, one of the most persistent challenges in performance reporting is determining the right approach to valuation timing. Accurate performance results are essential, but delays in receiving valuations can create friction with timely reporting goals. How can firms strike the right balance?

At Longs Peak Advisory Services, we’ve worked with hundreds of investment firms and asset owners globally to help them present meaningful, transparent performance results. When it comes to illiquid investments, the trade-offs and decisions surrounding valuation timing can have a significant impact—not just on performance accuracy, but also on how trustworthy and comparable the results appear to stakeholders.

Why Valuation Timing Matters

Illiquid investments are inherently different from their liquid counterparts. While publicly traded securities can be valued in real-time with market prices, private equity and real estate investments often report with a delay—sometimes months after quarter-end.

This delay creates a reporting dilemma: Should firms wait for final valuations to ensure accurate performance, or should they push ahead with estimates or lagged valuations to meet internal or external deadlines?

It’s a familiar struggle for investment teams and performance professionals. On one hand, accuracy supports sound decision-making and stakeholder trust. On the other, reporting delays can hinder communication with boards, consultants, and beneficiaries—particularly for asset owners like endowments and public pension plans that follow strict reporting cycles.

Common Approaches to Delayed Valuations

For strategies involving private equity, real estate, or other illiquid holdings, receiving valuations weeks—or even months—after quarter-end is the norm rather than the exception. To deal with this lag, investment organizations typically adopt one of two approaches to incorporate valuations into performance reporting: backdating valuations or lagging valuations. Each has benefits and drawbacks, and the choice between them often comes down to a trade-off between accuracy and timeliness.

1. Backdating Valuations

In the backdating approach, once a valuation is received—say, a March 31 valuation that arrives in mid-June—it is recorded as of March 31, the actual valuation date. This ensures that performance reports reflect economic activity during the appropriate time period, regardless of when the data became available.

Pros:
  • Accuracy: Provides the most accurate snapshot of asset values and portfolio performance for the period being reported.
  • Integrity: Maintains alignment between valuation dates and the underlying activity in the portfolio, which is particularly important for internal analysis or for investment committees wanting to evaluate manager decisions during specific market environments.
Cons:
  • Delayed Reporting: Final performance for the quarter may be delayed by 4–6 weeks or more, depending on how long it takes to receive valuations.
  • Stakeholder Frustration: Boards, consultants, and beneficiaries may grow  frustrated if they cannot access updated reports in a timely manner, especially if performance data is tied to compensation decisions, audit     deadlines, or public disclosures.

When It's Useful:
  • When transparency and accuracy are prioritized over speed—e.g., in annual audited performance reports or regulatory filings.
  • For internal purposes where precise attribution and alignment with economic events are critical, such as evaluating decision-making during periods of market volatility.

2. Lagged Valuations

With the lagged approach, firms recognize delayed valuations in the subsequent reporting period. Using the same example: if the March 31valuation is received in June, it is instead recorded as of June 30. In this case, the performance effect of the Q1 activity is pushed into Q2’sreporting.

Pros:
  • Faster Reporting: Performance reports can be completed shortly after quarter-end, meeting board, stakeholder, and regulatory timelines.
  • Operational Efficiency: Teams aren’t held up by a few delayed valuations, allowing them to close the books and move on to other tasks.

Cons:
  • Reduced Accuracy: Performance reported for Q2 includes valuation changes that actually occurred in Q1, misaligning performance with the period in which it was earned.
  • Misinterpretation Risk: If users are unaware of the lag, they may misattribute results to the wrong quarter, leading to flawed conclusions about manager skill or market behavior.

When It's Useful:
  • When quarterly reporting deadlines must be met (e.g., trustee meetings, consultant updates).
  • In environments where consistency and speed are prioritized, and the lag can be adequately disclosed and understood by users.

Choosing the Right Approach (and Sticking with It)

Both approaches are acceptable from a compliance and reporting perspective. However, the key lies in consistency.

Once an organization adopts an approach—whether back dating or lagging—it should be applied across all periods, portfolios, and asset classes. Inconsistent application opens the door to performance manipulation(or the appearance of it), where results might look better simply because a valuation was timed differently.

This kind of inconsistency can erode trust with boards, auditors and other stakeholders. Worse, it could raise red flags in a regulatory review or third-party verification.

Disclose, Disclose, Disclose

Regardless of the method you use, full transparency in reporting is essential. If you’re lagging valuations by a quarter, clearly state that in your disclosures. If you change methodologies at any point—perhaps transitioning from lagged to backdated—explain when and why that change occurred.

Clear disclosures help users of your reports—whether board members, beneficiaries, auditors, or consultants—understand how performance was calculated. It allows them to assess the results in context and make informed decisions based on the data.

Aligning Benchmarks with Valuation Timing

One important detail that’s often overlooked: your benchmark data should follow the same valuation timing as your portfolio.

If your private equity or real estate portfolio is lagged by a quarter, but your benchmark is not, your performance comparison becomes flawed. The timing mismatch can mislead stakeholders into believing the strategy outperformed or underperformed, simply due to misaligned reporting periods.

To ensure a fair and meaningful comparison, always apply your valuation timing method consistently across both your portfolio and benchmark data.

Building Trust Through Transparency

Valuation timing is a technical, often behind-the-scenes issue—but it plays a crucial role in how your investment results are perceived. Boards and stakeholders rely on accurate, timely, and understandable performance reporting to make decisions that impact beneficiaries, employees, and communities.

By taking the time to document your valuation policy, apply it consistently, and disclose it clearly, you are reinforcing your organization’s commitment to integrity and transparency. And in a world where scrutiny of investment performance is only increasing, that commitment can be just as valuable as the numbers themselves.

Need help defining your valuation timing policy or aligning performance reporting practices with industry standards?

Longs Peak Advisory Services specializes in helping investment firms and asset owners simplify their performance processes, maintain compliance, and build trust through transparent reporting. Contact us to learn how we can support your team.

Key Takeaways from the 2025 PMAR Conference
This year’s PMAR Conference delivered timely and thought-provoking content for performance professionals across the industry. In this post, we’ve highlighted our top takeaways from the event—including a recap of the WiPM gathering.
May 29, 2025
15 min

The Performance Measurement, Attribution & Risk (PMAR) Conference is always a highlight for investment performance professionals—and this year’s event did not disappoint. With a packed agenda spanning everything from economic uncertainty and automation to evolving training needs and private market complexities, PMAR 2025 gave attendees plenty to think about.

Here are some of our key takeaways from this year’s event:

Women in Performance Measurement (WiPM)

Although not officially a part of PMAR, WiPM often schedules its annual in-person gathering during the same week to take advantage of the broader industry presence at the event. This year’s in-person gathering, united female professionals from across the country for a full day of connection, learning, and mentorship. The agenda struck a thoughtful balance between professional development and personal connection, with standout sessions on AI and machine learning, resume building, and insights from the WiPM mentoring program. A consistent favorite among attendees is the interactive format—discussions are engaging, and the support among members is truly energizing. The day concluded with a cocktail reception and dinner, reinforcing the group’s strong sense of community and its ongoing commitment to advancing women in the performance measurement profession.

If you’re not yet a member and are interested in joining the community, find WiPM here on LinkedIn.

Uncertainty, Not Risk, is Driving Market Volatility

John Longo, Ph.D., Rutgers Business School kicked off the conference with a deep dive into the global economy, and his message was clear: today’s markets are more uncertain than risky. Tariffs, political volatility, and unconventional strategies—like the idea of purchasing Greenland—are reshaping global trade and investment decisions. His suggestion? Investors may want to look beyond U.S. borders and consider assets like gold or emerging markets as a hedge.

Longo also highlighted the looming national debt problem and inflationary effects of protectionist policies. For performance professionals, the implication is clear: macro-level policy choices are creating noise that can obscure traditional risk metrics. Understanding the difference between risk and uncertainty is more important than ever.

The Future of Training: Customized, Continuous, and Collaborative

In the “Developing Staff for Success” session, Frances Barney, CFA (former head of investment performance and risk analysis for BNY Mellon) and our very own Jocelyn Gilligan, CFA, CIPM explored the evolving nature of training in our field. The key message: cookie-cutter training doesn't cut it anymore. With increasing regulatory complexity and rapidly advancing technology, firms must invest in flexible, personalized learning programs.

Whether it's improving communication skills, building tech proficiency, or embedding a culture of curiosity, the session emphasized that training must be more than a check-the-box activity. Ongoing mentorship, cross-training, and embracing neurodiversity in learning styles are all part of building high-performing, engaged teams.

AI is Here—But It Needs a Human Co-Pilot

Several sessions explored the growing role of AI and automation in performance and reporting. The consensus? AI holds immense promise, but without strong data governance and human oversight, it’s not a silver bullet. From hallucinations in generative models to the ethical challenges of data usage, AI introduces new risks even as it streamlines workflows.

Use cases presented ranged from anomaly detection and report generation to client communication enhancements and predictive exception handling. But again and again, speakers emphasized: AI should augment, not replace, human expertise.

Private Markets Require Purpose-Built Tools

Private equity, private credit, real estate, and hedge funds remain among the trickiest asset classes to measure. Whether debating IRR vs. TWR, handling data lags, or selecting appropriate benchmarks, this year's sessions highlighted just how much nuance is involved in getting private market reporting right.

One particularly compelling idea: using replicating portfolios of public assets to assess the risk and performance of illiquid investments. This approach offers more transparency and a better sense of underlying exposures, especially in the absence of timely valuations.

Shorting and Leverage Complicate Performance Attribution

Calculating performance in long/short portfolios isn’t straightforward—and using absolute values can create misleading results. A session on this topic broke down the mechanics of short selling and explained why contribution-based return attribution is essential for accurate reporting.

The key insight: portfolio-level returns can fall outside the range of individual asset returns, especially in leveraged portfolios. Understanding the directional nature of each position is crucial for both internal attribution and external communication.

The SEC is Watching—Are You Ready?

Compliance was another hot topic, especially in light of recent enforcement actions under the SEC Marketing Rule. From misuse of hypothetical performance to sloppy use of testimonials, the panelists shared hard-earned lessons and emphasized the importance of documentation. This panel was moderated by Longs Peak’s Matt Deatherage, CFA, CIPM and included Lance Dial, of K&L Gates along with Thayne Gould from Vigilant.

FAQs have helped clarify gray areas (especially around extracted performance and proximity of net vs. gross returns), but more guidance is expected—particularly on model fees and performance portability. If you're not already documenting every performance claim, now is the time to start.

“Phantom Alpha” Is Real—And Preventable

David Spaulding of TSG, closed the conference with a deep dive into benchmark construction and the potential for “phantom alpha.” Even small differences in rebalancing frequency between portfolios and their benchmarks can create misleading outperformance. His recommendation? Either sync your rebalancing schedules or clearly disclose the differences.

This session served as a great reminder that even small implementation details can significantly impact reported performance—and that transparency is essential to maintaining trust.

Final Thoughts

From automation to attribution, PMAR 2025 showcased the depth and complexity of our field. If there’s one overarching takeaway, it’s that while tools and techniques continue to evolve, the core principles—transparency, accuracy, and accountability—remain as important a sever.

Did you attend PMAR this year? We’d love to hear your biggest takeaways. Reach out to us at hello@longspeakadvisory.com or drop us a note on LinkedIn!

ColoradoBiz Names Longs Peak’s Jocelyn Gilligan, CFA, CIPM as a Gen XYZ Top Young Professional
Longs Peak is pleased to announce that Partner and Co-Founder, Jocelyn Gilligan has been named a GenXYZ Top Young Professional by ColoradoBiz Magazine. As ColoradoBiz states, “They’re uncommon achievers, whether as entrepreneurs, CEOs, nonprofit leaders, visionaries critical to their companies’ success or, in some cases, all of those roles. This year’s Top 25 Young Professionals figure to continue making a difference professionally and in their communities for years to come.”
March 14, 2023
15 min

Longs Peak is pleased to announce that Partner and Co-Founder, Jocelyn Gilligan has been named a GenXYZ Top Young Professional by ColoradoBiz Magazine.

As ColoradoBiz states, “They’re uncommon achievers, whether as entrepreneurs, CEOs, nonprofit leaders, visionaries critical to their companies’ success or, in some cases, all of those roles. This year’s Top 25 Young Professionals figure to continue making a difference professionally and in their communities for years to come.”

Jocelyn grew up in Boulder, CO and graduated from the University of Colorado. She started her career at Ernst & Young in New York City where she worked on their Financial Services Transfer Pricing Team. She transferred with EY to their office in Shanghai and then eventually to Hong Kong. Jocelyn left EY as a Manager and relocated back to Colorado where she and her husband started a family. Soon thereafter, Jocelyn and Sean founded Longs Peak out of a small one-car garage in their home in Longmont, CO. Now running a thriving team of 14, Jocelyn has weathered the ups and downs of entrepreneurship. She credits a lot of their success to their amazing team and the community of entrepreneurs they live near and network with (Longs Peak is an active member of EO (Entrepreneurs Organization)).

Jocelyn is a voting member of the PTO at her children’s school and a member of Women in Investment Performance Measurement, a group recently founded to support women in the investment performance industry.

About ColoradoBiz’s Top 25 Young Professionals

The 13th annual Gen XYZ awards is open to those under 40 who live and work in Colorado — numbered in the hundreds, making for difficult decisions and conversations among judges, as always. Applications were judged by our editorial board based on career achievement, community engagement and their stories of how they got to where they are now.

About Longs Peak

Longs Peak is a purpose and values-driven company. It is our mission to make investment performance information more transparent and reliable—empowering investors to make better, more informed investment decisions.

At the onset, we were looking to help smaller investment managers by giving them access to professional performance experts and tools typically only available to very large firms. We know that our work enables emerging managers to compete with the big guys and helps facilitate their growth. We strive to be our clients’ most valued outsource partner and to be known for our exceptional client service. We know that providing exceptional client service means that we must first create a culture that lives by the ideals we are trying to create for our clients. A place where incredibly talented individuals are empowered to put their best work into the hands of clients that truly value what we do. As a firm, we recognize that our greatest asset is people – both those we work with and those we work for. We continue to evolve into something that represents the needs of both of these groups and hope someday a GIPS Report is provided to every prospective investor in the world.