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.
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