Ethics Flashcards
Via the asset manager code, when must a manager report performance to a client?
Quarterly and within 30 days on the end of quarter.
What is the standard approach of performance evaluation and how often must it be measured under GIPS?
Time weighted return. Monthly and EOM.
How are large external cash flows treated under GIPS?
Months are separated into sub periods to find the return without the cash in/out flow.
How are small external cash flows treated for a firm that does not measure daily performance under GIPS?
using the modified IRR or the modified Dietz return.
What is the modified Dietz equation?
(V1 – V0 – CF) / [V0 + ∑(CF × w)]
where w = (days in period – days passed) / days in period
What is the modified IRR equation?
∑|CF × (1+r)^w| + V0 (1+r)
where w = (days in period – days passed) / days in period
Under what two conditions may a firm present return as a money-weighted return under GIPS?
the portfolios are closed-end or fixed life. Illiquid investments are a significant part of the investment strategy.
What are the three methods to calculate composite returns under GIPS, and equations?
Beginning weights × modified Dietz.
Beginning weights with external cash flows (V0 + ∑(CF × w) × modified Dietz.
Aggregate return method (V1 – V0 – CF) / [V0 + ∑(CF × w)].
What are the four conditions required for a new manager/acquired firm can be linked to a new or acquiring firm?
Substantially all the investment decision makers must remain employed, decision making process must remain substantially in tact, new firm as records that document previous firm’s past performance, and no break in track record (but a grace period of one year to bring new firm in line with GIPS).
What fee disclosures are required under the standards, AMC and GIPS?
Duties to clients performance presentation must disclose returns gross- OR net-of-fees.
AMC must disclose returns gross- AND net-of-fees and any unusual expenses. Requires how fee is calculated, fee breakdown, and expected/average fee the client is likely to incur.
GIPS must disclose returns after transaction costs. Custody fees are not transaction costs. If bundled fee is offered, reduce by total amount of amount proportionate to transaction cost.
Under GIPS, what two composite disclosures can a firm miss if composite has less 6 portfolios?
Number of portfolios and internal dispersion measure.
How is priority of transactions and fair dealing different?
Priority of transactions is managers trading ahead of clients, and fair dealing is managers giving some clients special treatment over others.
