trade date accounting from 1.1.2005 as per Schweser… p160, Book 5. GIPS SUMMARY FOR REVIEW Posted by: Data_Monkey (IP Logged) [hide posts from this user] Date: June 3, 2008 02:24AM I think PJStyles asked if somebody had a summary of GIPS - I started to review this tonight (out of the GIPS Manual) and typed this stuff up (its the only way I can digest this). Its REQUIREMENTS only (not recommendations) for INPUT DATA/CALCULATION/COMPOSITE/DISCLOSE/PRESENTATION - I didn’t review Fundamentals of Compliance, Real Estate, Verification or Private Equity. I also bulleted off the Dispersion types allowed at the end. Hope it helps… (a quicker read at least)… D_M INPUT DATA REQUIREMENTS 1. Capture and maintain all data to support presentation 2. Portfolio valuations on Market Values (not cost/BV) 3. Valuation Frequency: • Jan 1, 2010 – Large Cash Flows 4. Jan 1, 2010 – value portfolios at calendar month end or the last business day of the month 5. Jan 1, 2006 – use trade date accounting 6. Accrual Accounting for Fixed Income Securities/other assets that accrue interest (MV of securities MUST include accrued Income) 7. Jan 1, 2006 – composites have start and end valuation dates. UNLESS composite is reported on a non-calendar year – dates MUST be calendar year end or last business day CALCULATION: 1. Total return – including realized and unrealized gains/losses and income 2. Time weighted returns that adjust for external cash flows. Chain link periodic returns. Treat cash flows in a consistent manner and document this manner. • Jan 1, 2005 – use approx rates of return that adjust for daily cash flows • Jan 1, 2010 – value portfolio on date of large external cash flows 3. Composite returns MUST be calc’d using asset weights of the individual portfolios using BEGING values or a method that reflects both beginning values and external cash flows 4. Cash / Cash equivalent returns MUST be included in calculations 5. Returns MUST be calc’d AFTER the deduction of actual trading expenses incurred during the period. CANNOT deduct estimated trading expenses. 6. COMPOSITE RETURNS: calc composite returns by asset weighting the individual portfolio returns: • Jan 1, 2006 – Quarterly • Jan 1, 2010 – Monthly 7. If actual trading expenses cannot be identified and segregated from a bundled fee: • When calc’ing GROSS-OF-FEES returns – returns MUST be deducted should be the entire BUNDLE FEE or the portion of the bundled fee that includes the trading expense • When calc’ing NET-OF-FEES returns – returns MUST be deducted should be the entire BUNDLE FEE or the portion of the bundled fee that includes the trading expense and the INVESTMENT MANAGEMENT fee COMPOSITE CONSTRUCTION: 1. Include all fee paying discretionary portfolios in at least one composite. You can also include non-fee portfolios (non-discretionary portfolios not allowed) 2. Composite Definition should be to similar investment strategies/objectives 3. Composite MUST include new portfolios in a timely basis when they come under management (UNLESS CLIENT SAYS NO!) 4. Include the performance of Terminated portfolios in historical returns in the appropriate composites UP TO the LAST FULL measurement period 5. Do not switch between composites UNLESS documented changes in client guidelines or the redefinition of the composite makes it appropriate to do so. The historical record SHOULD remain with the composite. 6. Treat convertible / hybrid securities consistently across time and within composites 7. CARVE OUT segments (excluding cash) cannot represent a discretionary portfolio and cannot be included in a composite. SINGLE ASSET CARVEOUT MUST INCLUDE CASH. This will not be allowed after Jan 1, 2010 unless CARVE OUT IS MANAGED SEPARATELY WITH ITS OWN CASH BALANCE. 8. Composites should only include assets under mgmt within the FIRM. Cannot link to simulated and actual portfolios together, 9. If a minimum portfolio value is set – cannot include anything below it and cannot apply it retroactively. DISCLOSE: 1. Definition of FIRM 2. Availability of a complete list and description of Composites 3. Minimum asset levels (if any) (and changes) of portfolios not included in composite 4. The currency used to state performance 5. The presence and use of derivatives (if material), leverage – including description of use, frequency and instrument characteristics 6. CLEARLY label GROSS-OF-FEES and NET-OF-FEES 7. Relevant details related to withholding tax treatment on dividends, interest, capital gains. 8. Known inconsistencies in exchange rates used AMONG portfolios in a composite and BETWEEN composite and benchmark 9. If Presentation conforms with local laws / regulations and not GIPS – disclose this and why they differ 10. Presentation before Jan 1, 2000 that doesn’t comply with GIPS?, state why and what period. 11. Jan 1, 2010 – single asset carve outs represented as a composite – state the policy used to allocate the cash to the returns. 12. FEE SCHEDULE appropriate to presentation 13. Composite contains portfolio with bundled fees – show percentages per annual period shown. 14. Composite contains portfolio with bundled fees – show types of fees included in bundle. 15. Show GROSS-OF-FEES – any other fees besides Transaction Costs? 16. Show NET-OF-FEES – any other fees besides Transaction Costs and Management Fees? 17. “Additional information is available” relating to policies for calculations and reporting. 18. Jan 1, 2006 – MUST state the use if Sub-Advisor and the time period 19. ALL significant events that could help client interpret the performance record 20. Composite descriptions 21. If the firm is redefined, state date and reason. 22. Composite redefined – state date and reason (cannot apply retroactively!) 23. Composite name change 24. Composite Creation date 25. Before Jan 1, 2010 – if calendar month end or last business day isn’t used for valuation date 26. Dispersion measure PRESENTATION AND REPORTING: 1. For Each composite • Minimum of 5 years of performance (or since inception) that meets GIPS requirements – add additional years until 10 years is shown • Annual returns for all years • # of portfolios (unless there are less than 5 portfolios for the full year – then not required) | Amount of Assets in composite | composite percentage of the total firms assets or the amount of the Total Firms assets at the end of a period. • Measure of dispersion of individual portfolios returns for each annual period (unless there are less than 5 portfolios for the full year – then not required) 2. Can link non-GIPS compliant returns to compliant history (if certain requirements are met – Cannot present non-compliant after Jan 1, 2000) 3. Cannot annualize partial year returns 4. (a) Can link to track records of a past firm if: • Substantially all decision makers are employed by new firm (research, portfolio managers, other staff) • Staff remains intact and independent in new firm • Has records to support history (b) State that they are linked © One firm joins another? Composite performance of both firms must be linked to ongoing returns if substantially all the assets from the past firm transfer into the new firm (d) If a compliant firm acquires a non-compliant firm – 1 year to bring it into compliance 5. Jan 1, 2006 – composite includes or is a single asset class – include the % of composite that is carveout 6. BENCHMARK: Benchmark performance should be for each annual period – if no benchmark, then explain WHY no benchmark. If there is a change in benchmark – disclose date of change and why. 7. Any non-fee paying portfolios in the composite? Show % of total Composite at the end of the annual period. Dispersion types allowed (including but not limited to:) • High and Low annual returns • Interquartile Range • Standard Deviation of (equal or asset weighted annual returns) • Range of annual returns
Traitor! Hang the Traitor!
Nice catch… 1.A.5 = Jan 1, 2005 1.A.7 = Jan 1, 2006 Hey - to date, my errata rate is still better the Schweser’s…
Your spiel is useful, though. Thanks.
Data_Monkey Wrote: ------------------------------------------------------- > Nice catch… > > 1.A.5 = Jan 1, 2005 > 1.A.7 = Jan 1, 2006 > > > Hey - to date, my errata rate is still better the > Schweser’s… You’re doing great. Sabotage, my a$$.
1 correction I may make: under comp construction item 7. it says “(excluding cash)” the use of () distorts the meaning. it sounds like firm cannot carve out segments “other than cash” but it should actually mean, firms cannot carve out segment without including cash!