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CFA Level III > GIPS > Flashcards

Flashcards in GIPS Deck (15):

Understanding GIPS

  1. For investment firms NOT individuals
  2. Voluntary
  3. More conceptual than specific rules


GIPS Executive Committee Objectives

  • Develop and implement GIPS
  • Provides clarity and answers questions
  • Coordinates countries


Benefits to Prospective Clients and Investment Managers

Prospective Clients

Confidence in performance data
cross-border comparable

Investment Managers

Competitive advantage
Required by some clients


Input Data Requirements and Recommendations


  • Use trade date accounting
  • Use accrual accounting
  • Fair value (not book or cost basis)

Recommendations (not required)

  • Value portfolios on date of all ECF
  • Valuation done by third party



Original and Modified Dietz Calculation

Original Dietz (Priot to 1/1/2005)

(EV - BV - ECF) / BV + (0.5)(ECF)


Modified Dietz (2005 - 2010)

(EV - BV - ECF) / BV + (days/30)(ECF)


Composite Construction

Group of similar accounts by investment style


Weights are based on BV or BV + ECF (cannot use EV)


Portfolios to Include in GIPS

  1. All fee-paying discretionary accounts MUST be in at lease one composite
  2. Nondiscretionary must to excluded
  3. Can include non-fee-paying portfolios if disclosed
  4. Portfolios below a defined size should be removed
  5. Remove portfolios temporarily with large ECF


Required Disclosures

MUST appear in report

  1. Benchmark description
  2. GIPS compliance statement (verified or not)
  3. Composite description
  4. Composite date
  5. Composite list
  6. Currency
  7. Dispersion - Internal
  8. Dispersion - External
  9. Firm description and total assets
  10. Fee schedule
  11. Policies for valuing, calculating, and presenting performance


Require Performance

  1. # of portfolios by year
  2. Composite assets by year
  3. Any type of dispersion
  4. 3 year std for composite and benchmark
  5. % of non-fee-paying or bundled


Disclosures Only when Relevant

  • Must report major events (manager leaving)


Special Provisions

Real Estate

  1. Income + Capital must = total return each quarter
    1. Quarters to NOT need to equal annual
  2. Can use chain-linked TWR (may cause annual return to be slightly higher)


Carve Outs

Cannot use Carve-out segments excluding cash


Beginning January 1, 2010, carve-out returns can only be used if:

1. Has its own cash balance

2. Completely separated



Private equity notes

  • Private equity
    • must have vintage year (first capital call)
    • report GOF and NOF
    • Net out carried interest, management fees, transactions costs
    • Required ratios; compared to paid-in capital


Other notes

  • Fewer than 6 portfolio: no dispersion required
  • Only trading fees should be deducted for GOF (NOT custodial fees)


Hierachy of Pricing

  1. Quoted prices from an active market for the same or similar security.
  2. Quoted prices from an inactive market for the same or similar security.
  3. Observable market-based inputs other than quoted prices.
  4. Subjective, unobservable inputs.