Tuesday, September 7, 2010
Personal returns ... how do they fit in?
First, we must realize that the "personal benchmark" is a money-weighted benchmark; it can't be time-weighted. And therefore to provide for comparison purposes a portfolio return that's time-weighted is clearly a matter of "apples and oranges." What else could it be? And while this information has some value to the manager, they're managing to achieve a superior time-weighted return, working around the flows that come in and out of the portfolio. If the client makes some bad timing decisions which result in a "personal return" below their benchmark, who do we blame?