GIPS (11.3.24) Flashcards
(40 cards)
Verification
An investment firm’s voluntarily engaging an independent third party to test the firm’s design and implementation of certain performance measurement policies and procedures
Can GIPS compliance be claimed for specified composites
No
Can GIPS compliance be claimed for specific pooled funds
No
Can GIPS compliance be claimed for specific portfolios
no
Can GIPS compliance be claimed for the entire firm
yes
Composite
aggregation of one or more portfolios that are managed according to a similar investment mandate, objective, or strategy
Segregated Account
Portfolio owned by a single client (SMA)
Pooled fund
1) Broad distribution: regulated under framework that would permit general public to or hold the pooled fund’s shares and not exclusively offered in one-on-one presentations (mutual funds)
2) Limited distribution: anything not a broad distribution (PE or HF)
5 Objectives of GIPS standards
1) Promote investor interests and instill investor confidence
2) Ensure accurate and consistent data
3) Obtain worldwide acceptance of a single standard for calculating and presenting performance
4) Promote fair, global competition among investment firms
5) Promote industry self-regulation on a global basis
8 Standards of GIPS
1) Fundamentals of compliance
2) Input data and calculation methodology
3) Composite and pooled fund maintenance
4) Composite time-weighted return report
5) Composite and money-weighted return report
6) Pooled fund time-weighted return report
7) Pooled fund money-weighted return report
8) GIPS advertising guidelines
Definition of the firm
Investment firm, subsidiary or division held out to the public as a distinct business entity
Total firm assets
Aggregate fair value of all assets (whether or not discretionary or fee-paying)
does not include advisory-only assets or uncalled committed capital
How often does the TMR need to be calculated (non private markets)
at least monthly as of the calendar month end or last business day of the month
if returns are not calculated daily and portfolio receives an intra-month large cash flow, portfolio must be valued and a sub-period return must be calculated at the time of the large cash flow
How often does TWR need to be calculated (private markets)
at least quarterly
Large cash flow
External cash flow of such size that it may distort the return if the portfolio is not valued and sub-period return is not calculated at the time of the cash flow
may be defined either relative to an absolute monetary threshold or as a percentage of the portfolio or composite assets
How often does TWR need to be calculated (pooled fund)
at least annually
TWR Formula
(V1 - V0) / V0
TWR using Modified Dietz method
(V1 - V0 - CF) / (V0 + sum of each flow multiplied by its weight)
When would a firm choose MWR over TWR
If the firm has control over the external cash flows AND 1) the portfolios are closed-end, fixed life, or fixed commitment OR
2) illiquid investments are significant part of the investment strategy
How often do MWR need to be calculated
annualized, since inception, annually
returns for periods of less than one year must not be annualized
Do custody fees count as transaction fees
no
When must composites for institutional investors reduce the gross-of-fees return by the entire amount of the bundled fee
if transactions costs cannot be identified and segregated from a bund fee
Definition of fair value
Amount at which an investment could be sold in an orderly, arm’s length transaction between willing parties and must include any accrued income on fixed-income securities and all other investments that earn interest income
3 Ways of calculating time-weighted composite returns
1) Asset-weighting the individual portfolio returns using beginning-of-period values
2) Using a method that reflects both beginning-of-period values and external cash flows
3) Using aggregate return method
