CFAI Mock Exam - GIPS - Arcadia

CFA Level III Portfolio Management
#1

Hi, I have a question about Q3 on whether the revision to the following statement is needed for return calculation methodologies:

Policy 4: Acradia uses the modified Dietz method to compute portfolio time-weighted rates of return on a monthly basis. Return for longer measurement periods are computed by geometrically linking the monthly return.

From p141 of Bk5 schewser note, it states that … beginning 1 Jan 2010, firms that use approximation methods, such as the modified Dietz method and modified IRR , will not be in compliance with GIPS when the standards will likely require the use of calculation methods that require valuations at the time of every external cash flow.

That means the Policy 4 should be revised to: ‘Acradia uses the " TWRR with revaluation at the time of external cash flow" to compute portfolio…’. Is my understanding accurate? Thanks.

#2

Hi, is there anyone could clarifies the query? Thanks!

#3

Without seeing the whole question I can not tell you the exact answer. What the standards require is the the TWRR values at the time of all large external flows. The key word there is large. This is defined by the client but typically represents 10% of the accounts BMV. If there were no flows larger then 10% then the performance would be calculated using the modified dietz.

#4

Yes, you are correct. Modified Dietz is only acceptable for periods between 1/1/05 and 1/1/10. This question appears to be out-of-date.