Background

Taking the Helmsman, Time-Weighted Stance

Private Equity as a Yield.

Not All Returns Are Born Equal

Steer a Steady Time Weighted Yield Course.

TIME-WEIGHTING

A More Coherent Perspective.

The money-weighted approach of current standards is an obstacle to the better understanding and acceptance of private market investment opportunities that both fund sponsors and investors seek. By putting private market returns in the unambiguous time-weighted context of all other asset classes, XTAL allows accurate comparability, improved pricing transparency, better liquidity and more efficient investment and risk management practices.

Ultimately, private fund investments are either cash (dry powder or distributions) or investment at work. Funding and reinvestment risk need better consideration than with current valuation standards. To this end, we have adopted equity and fixed income duration best practices to deliver an effective and innovative solution.

OBJECTIVE

Accurate Measurement.

Time-weighting is not about the mechanical chaining of interim horizon returns of all sorts. Real time-weighting is about the compounding of returns without distortion of interim cashflows, with the additional consideration that the time value of money matters, in particular with long-term investments.

Private fund investments are either cash (dry powder or distributions) or investment at work. Therefore, funding and reinvestment risk need better consideration than with current valuation standards. To this end, we have adopted equity and fixed income duration best practices to deliver an effective and innovative solution.

For example, even if the geometrical (linked) Modified Dietz Method (MDM) is classed as a TWR, the MDM is not a true TWR. The MDM is a money-weighted return, developed as an estimate of the IRR, for which it is known that not all the cash flows have “full-year” weight – but, nevertheless, its outcome is considered annualized and compounded.

PRINCIPLES

Adding the Constraint of Time

A fresh, unambiguous, fixed income-like, quantitative take on private market returns.
  • Comparable

    You pay your mortgage on a time-weighted basis. You earn interest on a time-weighted basis. You pay fees on a time-weighted basis. Why should you look at private investments only from a money-weighted, IRR, PME or money-multiple, standpoint? These measures just provide the fund manager standpoint.

  • Unlevered

    You pay fees on the full committed capital. You take funding risk for the full committed capital. Why should the reported performance let you assume that you earn on the whole capital what you earn on part of it for a short period of time? The undrawn capital and the cash play a role. So is compounding.

  • Indexed

    Dispersion of returns is less dramatic than reported. It's the IRR that exacerbates the results by assuming reinvestments of the distributions. In reality higher and lower returns are smoothed by duration and mean-reverting. Indexation (as implied by diversification) becomes prominent also in the private markets.

  • Investable

    Persistence of returns is not a certainty, diversification a requirement. With the possibility of proper indexation and synthesization offered by time-weighted returns, more efficient passive and derivative solutions are made available to investors - reducing cost and barriers to access to the private markets.

A fundamental yardstick

Wealth Growth = [1 + Yield] ^ Time

That's how dealing with money and time, in real life, works.
CHECK YOUR DATA
Careful with private market returns. Available metrics may not take you home.

Discover what a difference time-weighting makes.

EXPLOIT THE YIELD

Apply this formula from the inception of your investment to date (as you would with any other asset) and see if its result squares with your cash availabilities plus NAV.

Or let us help you.