{"concept_id":"ALTSS-PERF-009","slug":"time-weighted-return","canonical_name":"Time-Weighted Return","acronym":"TWR","aliases":["time-weighted rate of return","TWRR","geometric linked return"],"kind":"metric","authority":"industry","facets":["PRF"],"domains":["PERFORMANCE"],"display_title":"Time-Weighted Return (TWR)","search_aliases":["what is time weighted return","twr formula","time weighted rate of return","modified dietz","how to calculate twr","large cash flow gips"],"one_sentence_definition":"Time-weighted return (TWR) is a rate of return that removes the effect of the size and timing of external cash flows by compounding the returns of the sub-periods between those flows.","plain_english":"TWR measures how a portfolio performed per unit of money, whatever amount was invested at any moment. It splits the period at each deposit or withdrawal, measures the return of each piece, and chains the pieces together. An investor who added money just before a fall and one who added nothing see the same TWR, because the manager's decisions were the same; their money-weighted returns differ.","parent_concepts":[],"child_concepts":[],"related_concepts":["twr-vs-irr","irr","gips","gips-composite","xirr","return-smoothing","evergreen-fund","public-market-equivalent","horizon-irr","net-vs-gross-returns"],"comparison_concepts":[],"not_the_same_as":[{"slug":"irr","distinction":"IRR is money-weighted: periods with more capital invested count for more. TWR gives each sub-period equal weight regardless of the amount invested."},{"slug":"horizon-irr","distinction":"A horizon IRR measures a fixed window using starting NAV as an opening flow, but is still money-weighted."}],"formula_ids":["F-PERF-009-true-time-weighted-return","F-PERF-009-modified-dietz-approximation-within-a-period"],"worked_examples":[{"title":"Illustrative portfolio with a mid-year contribution","paragraphs":["A portfolio is worth $100 on 1 January 2025 and $110 on 2 July, when the investor adds $100 (value $210). It ends the year at $199.5. Sub-period returns are +10.0% and 199.5/210 − 1 = −5.0%, so TWR = 1.10 × 0.95 − 1 = **4.5%**. The investor's money-weighted return on the same flows (XIRR) is **−0.33%**: more money was invested during the losing half."],"calc":{"fn":"xirr","inputs":{"flows":[-100,-100,199.5],"dates":["2025-01-01","2025-07-02","2026-01-01"]},"expected":{"xirr":-0.0033},"tol":0.0005}},{"title":"The same year by Modified Dietz","paragraphs":["Without the 2 July valuation, one Modified Dietz calculation for the whole year weights the $100 contribution by the 183 of 365 days it was invested: (199.5 − 100 − 100) / (100 + 0.501 × 100) = **−0.33%**. The result sits next to the money-weighted figure, not the 4.5% TWR, because one large flow inside a long period is treated as average capital. Calculated at each large cash flow and geometrically linked, Modified Dietz approximates the TWR."],"calc":{"fn":"twr_modified_dietz","inputs":{"begin_value":100,"end_value":199.5,"flows":[100],"weights":[0.5013698630136987]},"expected":{"modified_dietz_return":-0.00333,"average_capital":150.137},"tol":0.0005}}],"sections":[{"heading":"External cash flows and large cash flows","paragraphs":["An **external cash flow** is capital or assets that an investor moves into or out of a portfolio: a subscription, redemption, contribution or withdrawal. Income, realised gains and expenses inside the portfolio are not external flows; they are part of the return. A **large cash flow**, in the terminology of the [Global Investment Performance Standards](/glossary/gips) (GIPS), is a level the firm sets for a composite at or above which an external flow may distort performance if the portfolio is not valued on that date; portfolios must then be valued on the date of the flow. GIPS also uses a separate term, significant cash flow: a level of client-directed external cash flow that the firm determines may temporarily prevent it from implementing the composite strategy. The standards recommend a temporary new account to remove its effect."]},{"heading":"Where TWR is used in private markets","paragraphs":["TWR is the right measure where the manager does not control the timing of investor flows: [open-end funds](/glossary/open-end-fund), [evergreen](/glossary/evergreen-fund) and [semi-liquid funds](/glossary/semi-liquid-fund), open-end real estate indices such as [ODCE](/glossary/odce), and total-portfolio reporting at pension funds and endowments. For closed-end funds, where the GP decides when to call and return capital, the money-weighted [IRR](/glossary/irr) is the convention. GIPS 2020 requires time-weighted returns in general and permits money-weighted returns only when the firm controls the external cash flows and the portfolio has at least one of these characteristics: closed-end, fixed life, fixed commitment, or illiquid investments as a significant part of the strategy."]},{"heading":"Valuation frequency and appraised assets","paragraphs":["A TWR is only as good as the valuations at each break point. Private assets are typically valued quarterly by appraisal or model, so a TWR calculated on reported NAVs inherits their lags. Appraisal-based returns look smoother than the underlying economics, which understates volatility and correlation (see [return smoothing](/glossary/return-smoothing)). A quarterly TWR on a private fund is computable but describes the reported marks, not a market price."]},{"heading":"Comparing TWR with money-weighted returns","paragraphs":["When there is a single initial investment and no later flows, the money-weighted return equals the annualised TWR. They diverge whenever money is added or withdrawn before periods of unequal performance. A fund IRR therefore cannot be compared directly with an index TWR; [public market equivalent](/glossary/public-market-equivalent) methods apply the index to the fund's own cash flows instead. The trade-offs are set out in [TWR vs IRR](/glossary/twr-vs-irr)."]}],"classification_rules":[],"calculation_rules":[],"common_mistakes":["Describing a fund IRR as time-weighted.","Using one Modified Dietz calculation over a long period with large flows and calling the result a TWR.","Annualising a TWR for a period shorter than one year.","Comparing a closed-end fund's IRR with an index's TWR over the same calendar years.","Treating investment income or expenses as external cash flows."],"edge_cases":["A sub-period with a beginning value of zero or below has no defined return; the period must start after the first contribution.","Contributions in kind need a value on the transfer date to define the sub-period break.","Daily flows in a semi-liquid fund require daily (or at least flow-date) valuations for an exact TWR."],"external_standard_mappings":[{"standard":"GIPS 2020","reference":"Time-weighted returns; large cash flow and significant cash flow definitions; conditions for money-weighted returns","relation":"equivalent","source_id":"SRC-GIPS-2020-FIRMS"}],"source_ids":["SRC-GIPS-2020-FIRMS","SRC-GIPS-2020-GLOSSARY"],"citations":[{"source_id":"SRC-GIPS-2020-FIRMS","pinpoint":"1.A.35; 2.A.23-2.A.24; 3.B.2","supports":"TWR required unless MWR criteria are met; valuation and sub-period returns at large cash flows; geometric linking; temporary new account for significant cash flows","source":{"source_id":"SRC-GIPS-2020-FIRMS","title":"Global Investment Performance Standards (GIPS) for Firms 2020","authors":"CFA Institute","publisher":"CFA Institute","document_type":"standard","url":"https://www.gipsstandards.org/wp-content/uploads/2021/03/2020_gips_standards_firms.pdf","year":2019,"publication_date":"2020 edition; effective 1 January 2020; required for GIPS Reports with periods ending on or after 31 December 2020","jurisdiction":"intl","status":"Current","last_verified":"2026-10-01"}},{"source_id":"SRC-GIPS-2020-GLOSSARY","pinpoint":"large cash flow; significant cash flow; external cash flow","supports":"Definitions of large and significant cash flows","source":{"source_id":"SRC-GIPS-2020-GLOSSARY","title":"GIPS Standards for Firms 2020 - Glossary (defined terms)","authors":"CFA Institute","publisher":"CFA Institute","document_type":"standard","url":"https://www.gipsstandards.org/wp-content/uploads/2021/03/2020_gips_standards_firms.pdf","year":2019,"publication_date":"Glossary section of the 2020 edition","jurisdiction":"intl","status":"Current","last_verified":"2026-10-01"}}],"faq":[{"q":"Why don't private equity funds report time-weighted returns?","a":"The GP controls when capital is called and returned, so a money-weighted return reflects the manager's decisions. GIPS permits money-weighted returns in that situation; open-end private funds, where investors control flows, generally report TWR."},{"q":"Is Modified Dietz a time-weighted return?","a":"Not by itself. It is a money-weighted approximation for a single period; linked over short periods it approximates a time-weighted return."}],"seo":{},"first_published":null,"last_reviewed":"2026-10-01","last_modified":"2026-10-01","content_version":"2.0.0","url":"https://altss.com/glossary/time-weighted-return","json_url":"https://altss.com/reference/concepts/time-weighted-return.json","title":"Time-Weighted Return (TWR)","formulas":[{"formula_id":"F-PERF-009-true-time-weighted-return","concept_id":"ALTSS-PERF-009","label":"True time-weighted return","plain":"TWR = (1 + r_1) × (1 + r_2) × ... × (1 + r_n) − 1, where r_i = (EMV_i − BMV_i) / BMV_i","latex":"\\mathrm{TWR}=\\prod_{i=1}^{n}\\left(1+r_i\\right)-1,\\qquad r_i=\\frac{\\mathrm{EMV}_i-\\mathrm{BMV}_i}{\\mathrm{BMV}_i}","variables":[{"symbol":"r_i","meaning":"return of sub-period i, which runs from one external cash flow to the next"},{"symbol":"BMV_i","meaning":"market value at the start of sub-period i, including the external cash flow that opens it"},{"symbol":"EMV_i","meaning":"market value at the end of sub-period i, immediately before the next external cash flow"},{"symbol":"n","meaning":"number of sub-periods"}],"convention_note":"Exact TWR needs a valuation at every external cash flow. Annualise only for periods of at least one year: (1 + TWR)^(1/Y) − 1, where Y is the number of years."},{"formula_id":"F-PERF-009-modified-dietz-approximation-within-a-period","concept_id":"ALTSS-PERF-009","label":"Modified Dietz (approximation within a period)","plain":"R = (EMV − BMV − CF) / (BMV + sum of W_i × CF_i), where W_i = (CD − D_i) / CD","latex":"R_{\\mathrm{MD}}=\\frac{\\mathrm{EMV}-\\mathrm{BMV}-\\mathrm{CF}}{\\mathrm{BMV}+\\sum_i W_i\\,\\mathrm{CF}_i},\\qquad W_i=\\frac{\\mathrm{CD}-D_i}{\\mathrm{CD}}","variables":[{"symbol":"CF","meaning":"net external cash flow during the period (sum of the CF_i)"},{"symbol":"CF_i","meaning":"individual external cash flow i (inflows positive)"},{"symbol":"CD","meaning":"calendar days in the period"},{"symbol":"D_i","meaning":"days from the start of the period to cash flow i"}],"convention_note":"Modified Dietz is itself a money-weighted approximation within the period. Calculated for short periods (for example monthly, and at each large cash flow) and then geometrically linked, it approximates a true TWR. Over a long period with a large flow it does not."}],"sources":[{"source_id":"SRC-GIPS-2020-FIRMS","title":"Global Investment Performance Standards (GIPS) for Firms 2020","authors":"CFA Institute","publisher":"CFA Institute","document_type":"standard","url":"https://www.gipsstandards.org/wp-content/uploads/2021/03/2020_gips_standards_firms.pdf","year":2019,"publication_date":"2020 edition; effective 1 January 2020; required for GIPS Reports with periods ending on or after 31 December 2020","jurisdiction":"intl","status":"Current","last_verified":"2026-10-01"},{"source_id":"SRC-GIPS-2020-GLOSSARY","title":"GIPS Standards for Firms 2020 - Glossary (defined terms)","authors":"CFA Institute","publisher":"CFA Institute","document_type":"standard","url":"https://www.gipsstandards.org/wp-content/uploads/2021/03/2020_gips_standards_firms.pdf","year":2019,"publication_date":"Glossary section of the 2020 edition","jurisdiction":"intl","status":"Current","last_verified":"2026-10-01"}]}