Calculating Portfolio Returns Under Global Investment Performance Standards (GIPS)

GIPS requires portfolio returns to be calculated using time-weighted total return, adjusted for external cash flows. Portfolios must be valued for return calculations at least monthly (beginning in January 2010 valuation must occur at least monthly on the last business day of the month and also whenever large external cash flows occur.)

The definition of a “large” external cash flow must be applied consistently. Firms can formulate and document composite-specific policies as long as the policies are consistently applied. The policy must describe the methodology for computing time-weighted return (beginning in January 2010 only true time-weighted return will be permitted) and the assumptions made regarding capital inflows and outflows.

For more information, see all articles on: Investment Returns, Performance Measurement, Portfolio Management

See also:
  • Global Investment Performance Standards (GIPS) Characteristics
  • Global Investment Performance Standards (GIPS)
  • Required Disclosures Under Global Investment Performance Standards (GIPS)
  • Presenting Composite Returns Under Global Investment Performance Standards (GIPS)
  • Time Weighted Rate of Return vs. Money Weighted Rate of Return
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