I was sent the following question from a client:
"How do you calculate performance for a composite that contains two or more funds? Do you combine multiple funds' cash flows and calculate an IRR [internal rate of return] using all the funds' contributions, distributions and residual values as if they were from a single fund?"
Some background: the writer is speaking about a client's account, where they are reporting to the client, and are using the concept of a "composite" to pool the client's accounts together.
In this case, unlike with time-weighting, we would aggregate the accounts (starting and ending market values, as well as cash flows). We then calculate an IRR across this aggregate account. I would not encourage asset weighting individual IRRs, though to confess I haven't played around with it; my "gut" is speaking here.
And so, there is a place for aggregation: for IRRs, when we are reporting to a client about their return!