Opportunistic investing - Performance measurement, benchmarking, and evaluation

The time-weighted rate of return is an inaccurate measure of performance for investments in which the manager has control over the size and timing of cash flows. (Such investments are referred to as opportunistic investments.) In these situations, use of the IRR is recommended. The authors discuss modifications of the standard IRR measure that more accurately evaluates the performance of opportunistic investment funds. They also develop a technique called the dollar-metric approach that enhances performance evaluation by calculating the value-added wealth creation of an opportunistic fund versus that of an appropriate benchmark.