Hoping some of my AF buddies can chime in on their thoughts. I work at a global asset management firm. We have a new product that we are going to start marketing that has a backtested/simulated history and one month of real returns.
According to GIPS, can we show the backtested/simulated results and the actual results in one chart, essentially as a continuous time series of returns, however, with clear disclosure stating that a portion of the track record is simulated. The simulated portion of the track record is not in the composite.
Our compliance group says that we must not put the simulated and actual performance in the same chart, but I believe that we can as long as appropriate disclosure is used. I believe this falls under the marketing materials section of the GIPS.
If anyone knows the answer and can provide a reference with the page number in CFAI readings, it would be much appreciated. Thank you in advance for your input.
3.A.3 FIRMS MUST NOT LINK performance of simulated or model PORTFOLIOS with actual performance. http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2010.n5.1 it’s done for a variety of reasons, the least of which is that GIPS requires ACTUAL trading fees and simulated performance doesn’t include real trading costs. you can report the simulated results separately as its own information chart, but not linked to actual results.
Thank you prophets. In our case, we are not referring to composite construction. This is a separate page in the marketing presentation that only shows performance. The linked results are not shown in the GIPS composite page. That said, do you still think it is a violation?
it’s hard for me to say without knowing more information because:
more than likely, the backtested strategy is the mandate or effectively the composite. regardless of what you are calling it in practice.
if it’s a separate page outside of the GIPS compliant portion, then it is probably governed by the ethics standards re: performance presentation/misrepresentation etc. i think you would have to make some kind of distinguishing analysis that the backtest doesn’t include trading fees and other expenses which inflate the returns, etc.
at the end of the day, you really need to ask a consulting firm that specializes in GIPS, not a msg forum on the internet with some guy named prophets.
Thank you for your reply. Our compliance group claims that linking the performance results is not permitted; hwoever, as I noted I belive they are following the rules of composite creation, which differ from those of performance presentation. We have clearly labeled all issues related to using backtested data including those that you mentioned. At the end of the day, our compliance group will determine how we proceed, I was just curious if anyone else has any thoughts on the topic.