What Happens To Fund Ranks When the Measure of Performance is Changed?

 

In this research brief, we compared fund ranks produced by these various performance measures:

  • Internal Rate of Return (IRR)

  • Total Value To Paid-In (TVPI)

  • Kaplan Schoar Public Market Equivalent (KS-PME)

  • Direct Alpha (DA)

  • Time-Weighted Rate of Return (TWRR)

We found that most measures tend to produce similar ranks. For example, 80-90% of funds fall in the same quintile, whether ranked by IRR or DA. The least similar are TVPI and  KS-PME, with only 60% agreement on average. The one exception is TWRR, which, as expected, produces significantly dissimilar ranks because it’s not money-weighted.  We also show that most of the information in these four measures – IRR, TVPI, KS-PME and DA –  can be summarized using just two numbers.

Scatter plot of IRR-, and TVPI-based ranks. The 45-degree and best- fit lines are shown in black and blue respectively .

Scatter plot of IRR-, and TVPI-based ranks.
The 45-degree and best- fit lines are shown in black and blue respectively
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The Burgiss Team