Could someone explain this concept in simple words. I don’t know why I am having difficulty understating it. Thanks.

I read this some time back and don’t clearly remember it. But here is how i remember it. A money management firm can have a stock and bond portfolio they manage for one of their specific customer. The firm can be reporting their performance in 2 specific composites, one for Stocks and another for bonds. So they have to carve out the portfolio into stock and bond and include in 2 different composites for reporting. Hope this makes sense.

It’s like you have balanced accounts (e.g. equity, debt and cash in one pack) for some of your clients and you want let’s say to integrate equity part into equity composite. So you have to carve out equity performance from balanced account.

so whats this deal with them talking about cash all the time? For example - “beginning 2010 carve-outs cannot be presented in a single asset class composite unless allocated cash and separately managed.” Does that mean carve-outs should always have cash in them? And it always says “Must include cash allocation if presented as part of single asset class portfolio”. Hmm…

omg Suppose you have a balanced account like this: 40% Equity 40% Debt 20% Cash Cash is retained apparently for liquidity purpose or something like that and generally decrease account return. You can’t just take the 40% high-performance equity part from this account into equity comosite. What you should do is to take relevant amount of cash with it to reflect appropriate cash drag on equity composite.

good explanation, bokonon!

omg that makes sense finally…thanks