GIPS definition of a firm

CFA Level III Portfolio Management
#1

Hey everyone, can someone help me out with this?

According to GIPS, a firm is defined as “an investment firm, subsidiary, or division held out to clients or prospective clients as a distinct business entity”.

As per Schweser question in LOS 34.u,

Text (Relevant portions)

Equity Investors is defined as the equity management unit of Manhattan Investment Management, Incorporated. Equity Investors manages all dedicated equity portfolios for Manhattan Investment Management, Incorporated.

The Equity Growth Composite includes all portfolios managed to the firm’s equity growth strategy. The composite also includes the equity growth segments of the balanced portfolios managed by another unit of Manhattan Investment Management, Incorporated.

Answer

The equity management unit of a larger investment management firm usually does not satisfy one of the options for defining a firm. In the case of Equity Investors, it is affiliated with the parent company, Manhattan Investment Management, Incorporated, as indicated by the source of the carve-out returns. Thus, Equity Investors may not define itself as a firm.

My query

I don’t understand why an affiliation with the parent company disqualifies it from being considered a Firm? The definition of a Firm clearly allows divisions to be recognized as a distinct business entity.

Thank you.

#2

Sounds like they can’t be defined as a separate firm because they are including returns from the parent in their composite.

Does Allianz include PIMCO portfolios in their composites?

#3

Thanks for the reply. But the issue is that I don’t see it mentioned anywhere in the text that a firm cannot be deemed separate just cause they include returns from the parent in the composite.

#4

humble bump? thank you.

#5

for the unit to be distinct and qualified as a firm, it must be a subsidiary, and not a unit.

#6

Why can’t it be a “division held out to clients or prospective clients as a distinct business entity”?

#7

Just came back to this question after a month and I still don’t get it. Anyone can explain please?

Why can’t it be a “division held out to clients or prospective clients as a distinct business entity”?