In a message dated 1/12/2006 12:23:27 P.M. Eastern Standard Time,
jimt@bivio.com writes:
I'm not
sure I know the right answer here, but I thought I'd
try to provide a bit
more context for the suggestion.
> Our club uses the first of the
month
> for its valuation.
This club records member investments
made mid-month using a
1st of the month valuation date. When
recording member
payments, they use the 1st of the month as the
"Member
Valuation Date" and a mid-month date as the
"Transaction
Date".
I don't see the problem here. This is no different than the traditional BI
method of using a fixed monthly valuation. The only difference is that bivio
provides more flexibility in designating a valuation date. The valuation date
only determines the unit value, hence the number of units purchased. The money
is still recorded as available on the transaction date.
>
The performance benchmarking tool
> uses the transaction
date.
As it should.
Apparently, the Performance Benchmark report uses
the
Transaction Date to make member investments into the
benchmark
fund. Presumably, this is done because the
transaction date (not the
valuation date) is when the funds
are actually available to the club to be
invested. So, if
the club were really to invest in the benchmark fund
it
would do so on the transaction date.
Right. And the members are really investing in the club on the same
transaction date.
If you don't believe me, run a first of the month valuation and member
status report. Then run another member status report for the day before the
meeting date. Then run a third member status report for the day after
the meeting. Comparing the first two MSRs, you'll find that the current
value for each member will change due to changes in the value of the
underlying securities, but each member's number of units will be constant.
Comparing either of the first two MSRs with the last will show the number of
units increasing for those members who contributed funds that month.
>
Due to this difference in dates,
> the benchmarking tool is
giving
> us invalid results.
No. It is giving the correct results. Both the benchmark and the club get
the benefit of new funds on the transaction date.
In
this club's situation, the IRR calculated for the club is
based on member
investments made on the 1st of the month
(the valuation date) while the IRR
for the benchmark fund is
(apparently) based on those same member
investments made on
a mid-month date (the transaction date). Strictly
speaking,
if the cash flows are not on the same dates the IRRs are
not
comparable. (This is a potential issue anytime the
transaction
date and the valuation date are different for
member
payments.)
No, the IRR for the club is based on investments made on the transaction
date.
It seems to me that clubs using a valuation date weeks
prior
to the transaction date are getting an unrealistic IRR for
their
club anyway. (You can't actually invest in stocks
today using prices
from 2-3 weeks ago!) The "fix" this club
is requesting is to change
the Performance Benchmark report
so the benchmark fund IRR is based on the
same unrealistic
assumption. That would make the IRRs more comparable
(at
the cost of making them *both* unrealistic!).
BTW ... for clubs
(like mine) where the valuation date and
the transacdtion date are the same
for member payments
(i.e., the meeting date), it doesn't make any
difference one
way or the other.
Nor does it make any difference for clubs using different valuation and
transaction dates.
Ira Smilovitz