Reporting Hedge Fund Performance

Great investment operations endure the test of time, spanning decades of consistently compounding money. Along these lines, we strongly maintain and attempt to be the same and consistently reach double digits growth on an annual-basis. 

This is Part 5 of a Series. Go to Part 4: Accounting as the Language of Business

The following is a portion of a letter addressing my partners which states, clarifies, and addresses the operating principle behind that private investment partnership (i.e. hedge fund) I began. I would recommend that you start your reading at the beginning.

Noting performance, our aggregate partners’ equity increased 2.82% from its inception on November 22, 2010—the date of approval of our proposed Articles of Partnership and registration with the Securities and Exchange Commission (SEC)—up to 2010’s yearend. This translates to an effective annual rate of return of 26.42% (computed as 2.82% multiplied by 365/39 days).

Time-Weighted Rate of Return: It's All About Relative, Simple Yields

This is Part 2 of a Series. Go to Part 1: Measuring Portfolio Performance: The Market-Conscious Side of the Rational Investor

The Time-Weighted Rate of Return. This rational measure tries to capture the fund performance in terms of simple, periodic returns, discrediting the distorting effects of infusions and withdrawals.

Late last year, I began a private investment partnership (in common parlance, a hedge fund) with some friends and family members. Although the original plan for the partnership was to carry it on indefinitely as a going-concern, my partners and I were forced to liquidate it just recently because of personal constraints (this is another story). What follows are two letters addressing my partners on the subject of measuring performance. The first letter tries to explain my personal fund’s time-weighted performance (although it didn't explicitly tell I was using TW; I still had then the faintest idea of using the MW approach and thought that TW is the only correct way of presenting and measuring returns). The second letter explains the MW approach; there, I tried to explain and reconcile the differences between both approaches.

Note: For privacy and other reasons, while my portfolio's starting capital is presented below to be Php100,000, this isn’t the exact, actual amount; accordingly, succeeding deposits (withdrawals) and gains (losses) are proportionately adjusted.