The internal rate of return and institutional performance measurement for real estate portfolios

A strong argument is made for why the internal rate of return (IRR) should be required to be reported for closed-end real estate funds and discretionary separate accounts, even though AIMR reporting standards do not currently require such reporting. One of the primary objectives of the standards is...

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Bibliographic Details
Published in:Real Estate Finance 1998-07, Vol.15 (2), p.63
Main Authors: Mahoney, Joe, Murphy, Jeanne, Keogh, Sean
Format: Article
Language:English
Subjects:
Approximation
Cash flow forecasting
Commingled funds
Financial reporting
Institutional investments
Internal rate of return
Investment advisors
Liquidation
Mutual funds
Portfolio performance
Rates of return
Real estate
Studies
Valuation
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Summary:A strong argument is made for why the internal rate of return (IRR) should be required to be reported for closed-end real estate funds and discretionary separate accounts, even though AIMR reporting standards do not currently require such reporting. One of the primary objectives of the standards is to promote greater comparability among managers. In the case of discretionary accounts, the IRR measure clearly helps to achieve this objective. Unlike the TWR, it is not dependent on the availability of prices at every cash flow, and it is not disproportionately influenced by returns earned while the portfolio is only partially invested. The IRR captures the total performance of the manager, both investment selection and cash flow timing decisions. The information value of the IRR justifies its use as an additional measure of return for discretionary accounts.
ISSN:0748-318X