If I have a balanced portfolio with strategic allocation 40% equity, 40% bond and 20% real estate, how should its performance be presented? Carve them out under “equity composite”, “bond composite” and “real estate composite” with proper cash allocation sounds ok at the moment, but after 2010 (when hopefully I don’t have to worry about this GIPS thing ^_^), such kind of carve out is prohibited (3A7). What can be done? Note that for this case cash is not separately managed for each asset class.
I guess its the end of your composites life if those were the only ones in teh composites. Remember you can have a Balanced Composite.
bigwilly Wrote: ------------------------------------------------------- > I guess its the end of your composites life if > those were the only ones in teh composites. > Remember you can have a Balanced Composite. good point. Now if have a balanced composite that has allocation as described before (40/40/20), how should I present it performance? Should I use general provision, or real estate provision?
^^^heck of a question. Can you do that? Maybe you can have a balanced composite like that…
i think you have to use the real estate provision for the 20% and the general provisions for the other 80%… saw a schwser question similar to this…but not exactly teh same so i’m extrapolating slightly.
Yes you can have a balanced composite. I would go with General Provision, but I would value the Real Estate portion in accordance witht he Real Estaet provision
^^^ Yea I know you can have a balanced composite but with one that includes real estate and private equity with stocks/bonds would be very confusing…
^^Its not confusing 
. But usually it will be the only fund in the composite
bigwilly Wrote: ------------------------------------------------------- > Yes you can have a balanced composite. I would go > with General Provision, but I would value the Real > Estate portion in accordance witht he Real Estaet > provision that means carving out the Real estate. But you can’t, since the cash is not separately managed! Deadlock?
No not carving out. THe composite overall should be General provisions. But the Real estate piece within the fund should be valued according the the RE provisions…once every quarter and once every 3 years by an Expert or soemthing like that.
bigwilly Wrote: ------------------------------------------------------- > No not carving out. THe composite overall should > be General provisions. But the Real estate piece > within the fund should be valued according the the > RE provisions…once every quarter and once every > 3 years by an Expert or soemthing like that. How are you showing composite return under general provision and real estate provision? They are quite different, eg. RE requires income return + capital return = total return. There are more …
The Real Estate component is part of the Total fund and you wont see the Real Estate return at the composite level. I’m just saying that the Real Estate portion of the fund should be valued in accordance to GIPS, but that is only within the fund. The composite retursn will be for the Total fund…
this is a quote from GIPS RE section if it is of any help: If a PORTFOLIO includes a mix of REAL ESTATE and other investments that are not REAL ESTATE, then these REQUIREMENTS and RECOMMENDATIONS only apply to the REAL ESTATE portion of the PORTFOLIO, and when the FIRM CARVES-OUT the REAL ESTATE portion of the PORTFOLIO, the GIPS CARVE-OUT provisions (see II.3.A.7) MUST also be applied.
for all our schweser users: RE MUST BE VALUED BY EXTERNAL VALUATOR ATLEAST EVERY 36 MONHTS. Schweser missed this somehow
krishna1 Wrote: ------------------------------------------------------- > this is a quote from GIPS RE section if it is of > any help: > > If a PORTFOLIO includes a mix of REAL ESTATE and > other investments that are not REAL > ESTATE, then these REQUIREMENTS and > RECOMMENDATIONS only apply to the REAL ESTATE > portion of the PORTFOLIO, and when the FIRM > CARVES-OUT the REAL ESTATE portion of the > PORTFOLIO, the GIPS CARVE-OUT provisions (see > II.3.A.7) MUST also be applied. this is exactly where my question is coming from. “when the firm carves-out the real estate portion of the portfolio, the GIPS CARVE-OUT provisions (see II.3.A.7) MUST also be applied” but the thing is that 3A7 bans you from carving out this real estate portion, since the cash within this “balanced portfolio” is pooled between equity, bond and RE. Thoughts?
It’s not prohibited after 2010 if it is managed separately.
when they say carve out provision applies, you need to proportionately allocate the cash to RE when you separate it and make it a composite of its own. well this is my interpretation…
^ It’s not prohibited, you just must allocate some of the cash to the RE portion if you are going to do a carve-out. But if you are doing a balanced composite then there is no carve-outs.
bigwilly Wrote: ------------------------------------------------------- > ^ It’s not prohibited, you just must allocate some > of the cash to the RE portion if you are going to > do a carve-out. But if you are doing a balanced > composite then there is no carve-outs. Make sure if you specify a custom benchmark for balanced, disclose rebalancing!
Yes.