Internal Rate of Return (IRR)

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Tamarac Reporting supports time-weighted return (TWR) and internal rate of return (IRR) performance methodologies.

The daily performance values are calculated based on the ending value, beginning value, and flow of each day. This return is stored and linked together to produce Tamarac Reporting's time-weighted returns. In other words, Tamarac uses a daily linked-IRR for our TWR methodology. Net and gross of fee options are available as is cumulative and annualized. However, all returns for periods shorter than 12 months are cumulative.

IRR is available in addition to TWR. We use a simple actual IRR calculation with a million-iteration limit. This method is more resource intensive, but more accurate than a modified equation such as the Dietz or average capital base.

The IRR cannot be computed directly. The IRR must be computed using a trial and error procedure in which you “guess” an answer, plug the guess into the equation, then modify the guess depending on the results. The new guess is plugged back into the equation, and the process is repeated until a satisfactory degree of precision is achieved. Tamarac Reporting will estimate up to 1 million guess-and-check iterations.

Calculated as:

EMV = BMV*IRR^D/T + Flow₁*IRR^D1/T + Flow₂*IRR^D2/T +…+Flow_n*IRR^Dn/T

T = days from beginning date to ending date

D = days until ending date

For more information and examples Performance Calculations.