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Quick Answer
IRR measures investment performance while accounting for when money was invested and returned.
Time-Weighted Return measures the performance of the underlying investment while reducing the effect of investor-controlled cash flows.
That makes IRR particularly important for private investments, while Time-Weighted Return is commonly used for liquid portfolios and investment-manager performance. It’s really important to understand these terms and to track them. MyFO helps with both.
What Is IRR?
IRR stands for Internal Rate of Return.
It measures the annualized return implied by an investment's cash flows.
It considers:
- How much money went in
- When it went in
- How much came back
- When it came back
- What the remaining investment is worth
ILPA defines IRR as the discount rate at which the present value of investment cash inflows and outflows produces a net present value of zero.
Why Timing Matters
Imagine two investments.
Both turn $1 million into $2 million.
Investment A does it in 3 years.
Investment B does it in 10 years.
Both have a 2.0x multiple.
But Investment A generated value much faster.
IRR captures that difference.
What Is Time-Weighted Return?
Time-Weighted Return, or TWR, measures investment performance by dividing the measurement period around external cash flows and compounding the resulting sub-period returns.
In simple terms, it tries to answer:
How did the investment strategy perform independent of when the investor added or withdrew money?
This makes TWR particularly useful when evaluating an investment manager who does not control the investor's deposits and withdrawals.
IRR vs. TWR
Gross IRR vs. Net IRR
Family offices should also distinguish between:
Gross IRR
Return before certain fund-level fees, expenses and carried interest.
Net IRR
Return experienced by the LP after applicable fees, expenses and carry.
For a family office evaluating its own investment result, net IRR is generally the more relevant number.
ILPA's 2025 Performance Template specifically standardizes gross and net performance reporting and provides breakouts with and without the effect of fund-level subscription facilities.
Why You Shouldn't Compare IRR With TWR Directly
They answer different questions.
IRR: What return did we experience given the timing of our money?
TWR: How did the portfolio or manager perform independent of external cash-flow timing?
Neither is inherently "better."
Use the metric appropriate to the investment.
How MyFO Helps
MyFO brings together performance data across both public and private investments, while applying the appropriate performance methodology to each type of asset.
For private investments, MyFO tracks the cash flows required to calculate IRR, including:
- Contributions and capital calls
- Distributions
- Current NAV
- Timing of each cash flow
For public and marketable investments, MyFO can calculate Time-Weighted Return (TWR), which measures investment performance without allowing the timing of external cash flows to distort the result.
Both IRR and TWR are calculated directly within MyFO and can be viewed at the individual fund or investment-account level. Users can also generate reports to analyze performance across multiple investments on an aggregate basis, or use MyFO's Claude MCP connection to run additional analytics using their portfolio data.
This allows family offices to use the right performance methodology for each asset class rather than forcing public and private investments into the same calculation.
Because MyFO's performance engine applies a consistent methodology to clean, structured data, performance calculations remain standardized and reliable across the family's portfolio.
In One Sentence
Use IRR when the timing of money matters.
Use TWR when you want to evaluate investment performance without investor cash-flow timing distorting the result.
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