Whenever an investment management firm presents its investment performance as being in compliance with the Global Investment Performance Standards (GIPS), it must state how it defines itself as a firm. Under GIPS, a firm may define itself for the purpose of claiming GIPS compliance using any of the following options EXCEPT when: A) all assets are managed to one or more base currencies. B) an investment firm, subsidiary, or division is held out to clients or potential clients as a distinct business unit. C) the subsidiary or division of a company claims GIPS compliance when the parent company is GIPS compliant. D) an entity is registered with the appropriate national regulatory authority overseeing the entity’s investment management activities. Your answer: C was correct. In order for an investment firm to claim GIPS compliance, GIPS must be applied on a firmwide basis. If the parent company is GIPS compliant, this does not automatically mean the divisions or subsidiaries are compliant. A division or subsidiary of a company would also have to comply with GIPS to be able to claim compliance. If an investment firm, subsidiary, or division is held out to clients or potential clients as a distinct business unit it can claim GIPS compliance even if the parent company is not compliant. ---------- ok, so which one is it? Do firms have to comply on a FIRMWIDE basis, or is it that when the parent company is compliant, it doesn’t mean that the subsidiary is as well? Do all operations, business units, etc have to be compliant in order to claim compliance at all?
Here’s my interpretation: For the parent company to claim compliance, child entities must be compliant as well. So, if the parent company is compliant, then the child company is compliant. A parent company cannot claim compliance if not all subsidiaries are independently compliant. If the child company is compliant, the parent entity does not necessarily have to be compliant.
My understanding is that parent and child firms are different entities. That’s why they have to comply with GIPS independently in order to claim their own GIPS compliance. I think a parent company can claim GIPS compliance even if its subsidiary is not compliant.
after rereading the answer provided by lola. i think maratikus nailed it. i was thinking that misuse of gips in the child entity may affect earnings… which would in turn affect earnings in the parent company. but, gips doesn’t affect earnings. good catch maratikus.
maratikus Wrote: ------------------------------------------------------- > My understanding is that parent and child firms > are different entities. That’s why they have to > comply with GIPS independently in order to claim > their own GIPS compliance. I think a parent > company can claim GIPS compliance even if its > subsidiary is not compliant. So what does firmwide mean then? I suppose subsidiaries are not included in the definition firmwide? I was under the impression, that in order for any entity to claim compliance, ALL units and subsidiaries have to be compliant as well. I’m confused.
a firm can be defined as an entity (say, Marketing LLC). A company might have multiple departments and be located in multiple cities but it’s still one firm as long as all those departments are members of the same entity (Marketing LLC). If the company has a subsidiary (Super Marketing LLC), the subsidiary is a different entity - different firm. Not a great explanation but I hope it helps.
firm <> company - consider Barclays Bank, Barclays Capital, Barclays Global Investors, and Gerrards Investment Management. All of them are part of Barclays PLC, but each are separate firms.
I get that. I guess I was labouring under the misguided notion that all subsidiaries have to be compliant in order for the parent company to claim compliance. thanks, apcarlso, maratikus and chrismaths.