Teaton Investment Management (TIM) has recently developed a proprietary prediction model. To test the model, TIM created a returns history for an equity value portfolio using hypothetical assets and a back-tested asset allocation strategy. TIM intends to include the simulated portfolio results in its performance presentation. Which of the following most accurately describes TIMs compliance with the Global Investment Performance Standards (GIPS)? (Assume that TIM is GIPS-compliant in all other areas). TIM is: A) GIPS-compliant as long as it discloses the inclusion of simulated returns in its performance presentation. B) not GIPS-compliant because the standards do not permit the inclusion of simulated portfolio results in performance presentations. C) GIPS-compliant if it includes the simulated portfolio in a composite that consists solely of simulated portfolios. D) GIPS-compliant as long as the simulated value equity portfolio is included in a value equity composite. -------------------------------------------------------------------------------- Click for Answer and Explanation A firm may not include model performance results in its presentation and claim compliance with GIPS. Under GIPS Standard 3.A.8, composites must include only assets under management and may not link simulated or model portfolios with actual performance. Simulated, back-tested, or model portfolio results do not represent the returns of actual assets under management and, thus, may not be included in composites performance results. My question: I chose answer C. Can a company present model result and still be GIPS compliant?
No. Cannot include simulated portfolio results period.
YOu cannot link model performance with actual performance. You CAN show model performance seperately with disclosures though, but they cannot be linked to actual returns.
Did we have a long-drawn out discussion on this, I think it was posted by mo34.