Hi! Can anyone explain to me how this whole thing with Carve-out works in practice? I understand that when you have e.g. a balanced mandate and take out the equity portion you need to contribute cash according to the revised GIPS rules. You also have to disclose the percentage of carved-out portfolios from your total composite. Can somebody explain to me how this cash contribution works? Maybe one who has actually done something for an investment firm? Sometimes it is just easier to remember rules when you know what they are talking about. Thanks! Christian
I’ll try and create an example: There is an SMA account owned by an Insurance company . The account has funds in two portfolios , first is a balanced composite with 60% equities , 30% bonds and 10% cash equivalents. Second is pure equities mandate ( 100% large cap growth) Balanced equities portion also managed thru same strategy as the pure mandate. Since the owner is the same if cash is diverted from First to second, for purpose of availing a rebalance cycle or if the equities part is maxed out in the balanced , then a composite consisting of the equities part of balanced ( carve-out)and the pure mandate is NOT allowed by GIPS. Cash is being shared or commingled , and the GIPS doesn’t allow it if the component portfolio ( or carve-out) does not separately manage its cash
Much clearer now. I guess the GIPS try to avoid that well performing parts of a balanced mandate are shown in a composite which might overstate that particular composite. By requiring it to have its own cash balance, it is much harder for SMA’s to be taken apart which I guess is not the real intention of a balanced mandate in the first place. Thanks a lot for your help!