Hi, 2 questions regarding the GIPS standard 2.A.2 on performance calculation.
Why is the MIRR method considered as a TWRR? It seems to me that it is exactly the same as the MWRR defined in SS 17
I understand that only daily valuation method is acceptable since 1 Jan 2010. So this means that portoflio must be valued at the time of ALL cash flow and not only at the date of large cash flow, right? So this supercede 1.A.3, am i correct?
I’m not sure I know what you’re referring to in your 1st question.
I think I can help with the 2nd question though: Per 2.a.2, performance must be calculated adjusting for “day-weighted” external cash flows, as in the Modified Dietz method. This does not mean that a portfolio must be re-valued on a daily basis in the performance return. Here is an example to illustrate:
Date Value Cash flow 12/31/14 500,000 1/15/15 505,000 -50,000 1/31/15 475,000
As you can see from the data here the daily valuation method isn’t possible. However, per the handbook, performance can be calculated properly using only this amount of data.
Modified Dietz: This would be used if the 50,000 did not meet the “large cash flow” threshold.
The Modified IRR method adjusts for the timing of CFs, making it an estimate of TWRR. Also, it is my understanding that firms must have the ability to value portfolios on a daily basis, but only must actually re-value on the date of large cash flows.