So all fee paying discretionary portfolios MUST be in a composite. Let’s say you have a composite that is large value (for example) and your composite minuimum is 2mm. What do you do with your 750K large value client? You can’t put them in this composite. Even though you are given a “reasonable amount of time” to get a portfolio into a composite if it’s a new account, that only applies when you can’t get the money invested, not for size reasons. I realize that (portfolios can dip down below a minimum and stay in a comp for a period, but that doesn’t apply here either… I am guessing that as a manager, you would need TWO large val composites - one for >= 2 MM and one for smaller ones. You couldn’t create a composite to store ALL your small ones, because that would violate composite creation rules. Could you redefine your composite with a lower minimum going forward? Am I overthinking this?
Nearly 100% chance that this will not be asked.
Gooman, I thought I was the king of GIPS, but you’ve got me there. Why can’t you just have one composite for everything big and small, and another just for big. What are the constraints on composite creation you’re describing? Don’t forget portfolios can be included in more than one composite
Couldn’t one of your disclosures be “Large Value Composite includes all portfolios with minimum account value over $2m”?
I agree this will not be on the exam but I will offer you my opinion based on how my firm addresses this. I don’t believe you are allowed to create a composite based on an asset threshold if you *actively* market the strategy to investors under the threshold. If you accepted an account under the threshold as an exception you would not include the account in the composite (it would be excluded due to not meeting the size threshold).
That is how my firm takes care of smaller accounts as well. They are labeled exception accounts, and not reported in a composite. A verifier has audited this setup, so I am sure this is GIPS compliant. All accounts must either be in a composite or in the exception list. Our exception list includes discretionary accounts below the minimum, and our few non-discretionary accounts.
In most cases if a firm is generally taking $750k accounts, then their composite minimum will resemble the amount of money they are taking in. If a firm with 5000 accounts only has 2-3 accounts that are small because of a favor or something else, it’s ok for it not to be in a composite. If 50% of the accounts aren’t in there then your composite floor is too high and if you ever went for validation you would get crushed.