Time-Weighted Return (TWR)

Time-Weighted Return (TWR) is a method of measuring investment performance that eliminates the impact of cash flows, such as deposits or withdrawals, on the calculation of returns. It focuses solely on the performance of the investment manager or strategy, making it a useful metric for evaluating how well a portfolio is managed over time.

In the context of family office software, TWR is often used to provide a clear and unbiased view of portfolio performance. By neutralizing the timing and size of cash flows, it ensures that the results reflect the manager's decisions rather than external factors. This makes it particularly valuable for comparing performance across different portfolios or investment strategies.

TWR is calculated by breaking the investment period into sub-periods, calculating the return for each, and then compounding these returns. This approach ensures consistency and comparability, which are critical for informed decision-making in family office settings.