I did GIPS and I liked it

CFA Level III
#1

So I spent whole day doing some 10 item sets plus all EOCs, reading this, and have summarized the whole framework in a page. By far the most dreaded topic has now become something to look forward to in the exam.

  1. PROVISIONS

  2. Fundamentals of Compliance

  • Apply on a firm wide basis
  • Must be an investment firm, a subsidiary or a distinct business unit
  • If it markets as part of a group then it is not a distinct unit
  • If combination of compliant with non-compliant, latter must become compliant within one year
  1. Input Data
  • Use fair value, trade date accounting (not settlement date) and accrual accounting
  • If period < 1/1/2001 report quarterly, otherwise monthly
  • If period > 1/1/2010 report monthly and after any large cash flows
  1. Calculation Methodology
  • Use TWR and link geometrically
  • For daily cash flows use Modified Dietz method
  • Calculate returns net of direct trading expenses
  • Custodian fees are not direct trading expenses
  • Use actual trading expenses, not estimated
  • Material changes must be disclosed
  1. Composite Construction
  • All actual, fee paying, discretionary portfolios in at least one composite
  • Do not include non-discretionary accounts
  • Define composite (similar to IPS) and make available upon request
  • Include terminated portfolios up the date of latest full measurement period
  • Historical performance of portfolio must remain in the original composite (no switching).
  • Include returns from cash and equivalents in total return calculations.
  • Must have separate accounts or sub accounts for carve outs (carve outs must have their own cash)
  1. Disclosure
  • Use precise wording of compliance claim
  • Disclose use of subadvisors and the period used
  • Disclose composite date and description but not too broadly.
  • If using custom benchmark disclose components, weights and rebalancing
  • Disclose periods of non-compliance prior to 2000
  • Disclose number of portfolios in a composite, unless number is < 5
  1. Presentation and Reporting
  • Disclose a measure of internal dispersion (std.dev, hi-low, interquartile etc) of annual returns.
  • Must present at least 5 years or since inception, and then continue until 10 years.
  1. Real Estate
  • At fair value, otherwise seek third party valuation
  • Calculate income return and capital return separately
  • If period < 1/1/2012 external valuation at least every 36 months
  • If period > 1/1/2012 external valuations at least annually, unless stipulated otherwise
  • Present cumulative committed capital, since inception paid-in capital and distributions.
  • Also present ratios such as TVPI, DPI and RVPI
  1. Private Equity
  • Separate composites by strategy as well as vintage.
  • The same as Real Estate more or less
  1. Wrap Fee/Separately Managed Account (SMA) Portfolios
  • Include performance record in appropriate composites
  • Disclose for each period that the composite does not contain actual wrap fee
  1. VALUATION PRINCIPLES
  • Follow this hierarchy of valuation:
    1. Objective, observable quoted market prices for active markets
    2. Quoted prices for identical or similar investments for inactive markets
    3. Any observable market based inputs
    4. Subjective unobservable inputs
  1. ADVERTISING GUIDELINES
  • Always include firm description
  • One-on-one presentations and individual client reports are not advertisements
  • You can just state that you are GIPS compliant without any further disclosure
  • If chose to also disclose performance then state composite and benchmark descriptions, fees (net or gross), currency used etc.
  • Present 1-3-5 year annualized composite returns plus period to date composite returns
  1. VERIFICATION
  • Provides credibility, but not accuracy
  • Must be a single report for firm, not separate for specific composite
#2

Damn. u r hardcore level! :stuck_out_tongue:

#3

You’re almost there. Now you need to create a matrix out of this and fit it on a 3x5 index card to complete the "krokSLAM"TM.

#4

Thank you!

#5

pop quiz… when are you allowed to take historic performance with you without having to ask your former employer?

#6

Is that GIPS or Ethics? Also, be kind to provide answer choices. Or a template to fill in. You get the idea.

#7

I ******* love you.

#8

Many Thanks!

#9

haha ya it’s GIPS. but to lazy to do answer choices, so i’ll tell you since you did all that work and shared it.

The only time you can use historic performance is if the entire decision making team goes with you. If 1 PM leaves and all the other PM and analysts stay you cant use historic performance. But if the entire or most of the team spins off to another company or own startup they can use the performance.

#10

Thanks for this!!

On the topic of GIPS, can anyone help me out with Carve-Outs and what they are/how to treat them. Apologies for this super general question, but I honestly understand nothing about these guys.

Thanks!

#11

basically it’s for with multiple asset classes… like target date funds you see in 401K plans. they are usually made up of different funds and it’s basically saying if you want to be able to seperate the asset classes into seperate portfolios the account has to be completely seperated from the get-go (have it’s own cash account). The point of that is so you aren’t dipping into the same pool with your dirty little fingers.

It’s like joining a frat to hook up with all the same girls in the sorority that everyone else has hooked up with. or vice versa. You want to get your own girl that’s clean.

#12

This was awesome thanks!

#13

Thanks kroko, I was searching for something like this.

#14

I did gips and was blown away at how shitty it is. 4 hours, hit EOC and got rocked. And what really grinds my gears, why the hell do they not show examples in each setting. Like advertisements…can’t spare the extra 20 pages. RRAAAGGGEEEEE

#15

Great, thank you!

Can someone give me the advice how to tackle GIPS. What’s the best and the most efficient way and how many hours did you put in to “master” the topic. Is it like ethics like you are never 100% sure if you answer is correct?

Tnx

#16

I put 6 hours in today. I watched IFT 39 minute video, made notes, read this thread, read this as well (https://gostudy.io/blog/Avoid-Memorization-and-score-points-on-GIPS-for-CFA-L3), got wrecked by some EOC’s, got 79% on topic test.

Best bet would not be reading the thing because it’s massive. May read these two things, hit EOC’s and read pieces as you go through. If you want to hate your life, read section 3, read advertising, read valuation.

You can read Verification but I’ll do my best

  • They do not verify any composite accuracy
  • It does not very any composite accuracy
  • It does not provide assurance that specific composites reeturns are correctly calcualted.
  • No single composite is verified. So any statement “X composite verified with gips” is wrong.
  • Yes, all 4 above are the same thing lol.
  • They verify that policies and procedures for composite definitions, performance calculation, and performance presentation are adequate.
  • This 3rd party can let another 3rd party do work, if they believe that 3rd party is qualified
  • You may sample portfolios to check work (That composite is correct, non-discretionary vs discretionary are correct, that returns/performance calculated correct) when giving 3rd party work.
  • Verifiers keep records of their work, The company being verified keeps the data for everything that complies.

Don’t think you can master it without 50 hours. So many damn little disclosures and dates. Aiming for 4/6 on the test.

I would say after today, I’m much more confident if given a GIPS question. I’ll re-read it again near the end just to really hate myself (my notes). If you want, pass my your email and I’ll send you my LOVELY document on it. Can’t gurantee anything about it, but hey, might be better than nothing.

#17

jsnazz, that’s awesome! Thank you very much.

#18

I’m being nitpicky here, but how can you get 79% on a topic test? There are only 6 questions, so 4/6 is 67%, while 5/6 is 83%.

#19

I’d assume he means across all four tests. 19 / 24 = 79.17%

#20

still hate it