Explain this to me like I’m a 3rd grader. I’m really struggling to understand exactly what this is. And what’s the difference between with cash and without cash?
Ohhh…this would be a beauty for me too. I was going to post this exact question, but wanted to glance through the CFA book first to see if they had an example in there. Just hadn’t gotten to it yet today.
My firm runs separately managed accounts, and we have 3 different strategies that we invest our client funds in: US large cap growth, US small cap, and International. Say one of our clients is invested in all three of these strategies. For the sake of reporting performance, I want to “carve out” the portion of this account that is allocated to US large cap and include in the US large cap composite, the portion invested in small cap stocks in the small cap composite, and so on. Say 30% of the account is invested in each of these strategies and 10% of the account is sitting in cash. I can’t just include the 30% portion of this account invested in large cap in the large cap composite - I have to allocate a portion of the cash sitting in the account to all three of the strategies, so to include the cash drag on performance. Beginning in 2010, you can only include carve outs if the strategy has a separately defined cash position, meaning you cannot just apportion cash sitting in the account based on weights. I think…
two existing composites: 50% domestic equity and 50% domestic bonds 50% international equity and 50% international bonds want to develop a global equity strategy, so, I “carve out” the domestic and international equity from the existing composites (and keep in mind everything else mentioned above re: cash and Jan 1, 2010)