Asset Management and Institutional Investors by Ignazio Basile & Pierpaolo Ferrari

Author:Ignazio Basile & Pierpaolo Ferrari
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

The second stage involves calculating the average capital employed (ACE), or rather the average invested balance:

The third stage produces a percentage return measure by dividing the investment result by the average capital employed in the period referred to:15

The return obtained in this way represents a periodic rate, which can be converted on an annual basis according to the conversion rules examined above.

7.2.3.2 Calculating Time-Weighted Return

The time-weighted rate of return makes it possible to obtain a return indicator which is unaffected by the impact of withdrawals and contributions which cannot be attributed to the asset manager (and therefore to the investment policy). By comparing the time-weighted portfolio return and the benchmark return, we can begin to assess the quality of the asset manager’s work, however imprecise this may be, due to the lack of consideration of the level of risk.

The TWRR is calculated in three subsequent steps:The first step breaks the period under examination into the various sub-periods, ranging from the investment of the initial assets, to all new contributions and/or withdrawals, until the end of the period under consideration.16

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