GIPS

CFA Level I Ethics
#1

Confused on the GIPS question below (Correct answer bolded). As I understood it, 5 years or since inception is required to claim compliance, but then I thought you add on a year until you reach 10 years? Except from Schweser: "

  • Include all actual fee-paying, discretionary portfolios in composites for a minimum of five years or since firm or composite inception. After presenting five years of compliant data, the firm must add annual performance each year going forward up to a minimum of ten years.

What am I missing here? Thank you!

Bob Sampson is the head portfolio manager for Global Equities, which has been in existence for eight years. Beginning this year, the firm has decided to present performance information in compliance with GIPS. To claim GIPS compliance, the firm must present at least:

A) eight years of GIPS-compliant performance information.

B) five years of GIPS-compliant performance information with no additional disclosure required for prior years.

C) five years of GIPS-compliant performance information and may include noncompliant performance information for the prior three years in the “Disclosures” section.

  • GIPS require that, to claim compliance, firms must present GIPS-compliant performance information for a minimum of five years or since inception if in existence less than five years. Firms may not link noncompliant performance information for any periods after January 1, 2000.
#2

I believe it’s because the GIPS standards were only started in the late 90s so if you were noncompliant before then, you could still show it and say it was noncompliant. After that, you really have no excuse to being noncompliant so you leave it out as opposed to showing your noncompliance. Just a guess though, hopefully someone else has something more concrete.

I did the same Mock as you and also got that one wrong, I was on the same thought process as you.

#3

When you first start complying with GIPS you’re allowed to show only five years of performance (or less than that if the firm hasn’t existed for 5 years). If you choose to show less than 10 years of performance, then you must build up to 10 years of performance, year-by-year. Once you start showing 10 years of performance, then you may roll it over year-by-year: dropping the most distant year and adding the most recent year.