Quelle est la différence entre TWR et MWR ?

Le TWR (Time-Weighted Return) neutralise les dépôts et retraits pour mesurer la compétence pure du gestionnaire. Le MWR (Money-Weighted Return / IRR) intègre le timing des flux pour mesurer l'expérience réelle de l'investisseur. Sur un même portefeuille, les deux peuvent diverger de plus de 25 points de pourcentage.

Quand utiliser le TWR vs le MWR ?

Utilisez le TWR pour évaluer un gestionnaire, comparer des managers entre eux, et le reporting GIPS. Utilisez le MWR pour évaluer votre rendement personnel, le private equity (où le manager contrôle les appels de fonds), et mesurer l'impact de votre propre timing.

Qu'est-ce que la méthode Modified Dietz ?

La méthode Modified Dietz, proposée par Peter Dietz en 1966, approxime le TWR sans nécessiter de valorisations quotidiennes. Formule : R = (EMV - BMV - CF) / (BMV + Σ wᵢ × CFᵢ). Elle pondère chaque flux par sa position dans la période. Aujourd'hui, le vrai TWR quotidien est préféré quand les données sont disponibles.

Pourquoi le SI-IRR peut-il être trompeur ?

Le SI-IRR (Since-Inception IRR) surpondère les rendements précoces sur de petits montants. L'exemple classique est le Yale Endowment : SI-IRR de 30.4% sur 9 ans mais seulement 11.5% sur 20 ans. Les gains en pourcentage sur un petit capital initial gonflent artificiellement le chiffre à long terme.

February 23, 202610 min readPerformance Measurement

TWR vs MWR: When to Use Which

"What's my return?" has two mathematically correct answers. Time-Weighted Return (TWR) and Money-Weighted Return (MWR, also called IRR) both measure performance, but they answer fundamentally different questions.

TWR measures the manager's skill: how well each dollar was invested, regardless of deposit timing. MWR measures the investor's experience: what actually happened to the money, including the impact of adding or withdrawing capital at specific moments. Choosing the wrong metric leads to wrong conclusions.

The Core Difference

TWR neutralizes cashflows. It treats every dollar equally, regardless of when it entered the portfolio. It answers: "How good is this manager at investing?"
MWR weights cashflows by timing. A dollar invested before a gain counts more than a dollar invested after. It answers: "How much money did I actually make or lose?"

TWR: Time-Weighted Return

TWR = [(1 + R1) x (1 + R2) x ... x (1 + Rn)] - 1

Each R is the return of a sub-period between cashflows. The portfolio is valued at each cashflow date, and returns are geometrically linked. This eliminates the effect of deposits and withdrawals entirely.

MWR: Money-Weighted Return (IRR)

0 = CF0 + CF1/(1+r) + CF2/(1+r)² + ... + CFn/(1+r)ⁿ

Solve for r (the internal rate of return). Each cashflow is discounted by its timing. A large deposit before a gain increases MWR. A large deposit before a loss decreases it. The result reflects both manager skill and investor timing.

When TWR and MWR Tell Opposite Stories

Same portfolio. Same manager. Radically different numbers.

Start: $100,000 invested.

Period 1: Manager doubles the money. Portfolio reaches $200,000 (+100%).

Investor deposits $200,000. Portfolio is now $400,000.

Period 2: Market drops 50%. Portfolio falls to $200,000 (-50%).

TWR

(1 + 1.00) x (1 - 0.50) - 1 = 0%

The manager broke even per dollar invested. Each dollar that entered the portfolio experienced +100% then -50%, netting to zero. The manager is not at fault.

MWR

Investor put in $300,000. Got back $200,000. MWR ≈ -26.8%

The investor lost money because $200,000 of their $300,000 was only exposed to the -50% period. The timing of the deposit destroyed value. The investor, not the manager, made the bad decision.

26.8 percentage points of divergence, with opposite signs. Both numbers are mathematically correct. They measure different things.

When to Use Each

TWR

Evaluating a fund manager's investment skill (GIPS standard).
Comparing two managers with different client cashflows.
Reporting to external audiences (prop firms, investors, regulators).
When the manager does not control deposit/withdrawal timing.

MWR / IRR

Evaluating your personal portfolio experience.
Private equity and venture capital (manager controls capital calls).
Assessing the impact of your own timing decisions.
When you want to know: "Did my money actually grow?"

Modified Dietz: The Practical Approximation

True TWR requires a portfolio valuation at every cashflow date. Before daily pricing became standard, this was impractical. In 1966, Peter Dietz proposed the Modified Dietz method as an approximation.

Modified Dietz

R = (EMV - BMV - CF) / (BMV + Σ wᵢ × CFᵢ)

EMV = ending market value. BMV = beginning market value. CF = net cashflows. wᵢ = weight of each cashflow based on when it occurred in the period. This approximates TWR without requiring daily valuations.

Today, with daily portfolio snapshots available from exchanges, true daily TWR is computable. Modified Dietz remains useful as a validation check and for periods with missing daily data.

The SI-IRR Trap: How Yale Made 30.4% (Or 11.5%)

David Swensen's Yale Endowment reported a Since-Inception IRR (SI-IRR) of 30.4% for its first 9 years. On a 20-year horizon, that number dropped to 11.5%. Both are correct. Neither is wrong.

SI-IRR heavily weights early returns on small dollar amounts. When the endowment was small, even modest gains produced large percentage returns. As assets grew into the billions, the same percentage gains became harder to achieve. The 30.4% figure is mathematically valid but practically misleading.

This is not unique to Yale. Any growing portfolio will show diverging TWR and IRR numbers. Always ask: what time horizon? What metric? What was the asset base?

What GIPS Mandates

Since 1999, the Global Investment Performance Standards (GIPS) have required TWR as the primary performance metric for investment management firms. The rationale is straightforward: managers cannot control when clients deposit or withdraw money, so they should not be measured by metrics that include those decisions.

GIPS 2020 added a requirement for money-weighted returns (SI-IRR) for closed-end fund strategies (private equity, real estate, infrastructure) where the manager controls capital calls and distributions. For all other strategies, TWR remains mandatory.

Over 1,700 firms in 47 countries claim GIPS compliance, managing more than $50 trillion. If you are building a track record for external consumption, TWR is the expected standard.

TWR vs MWR: When to Use Which

The Core Difference

When TWR and MWR Tell Opposite Stories

When to Use Each

Modified Dietz: The Practical Approximation

The SI-IRR Trap: How Yale Made 30.4% (Or 11.5%)

What GIPS Mandates

Get Your GIPS-Grade Track Record

TWR vs PnL: Why Your Equity Curve Lies

Why PnL Doesn't Measure Skill

Performance Measurement