What is actually important in this section and how is it tested? Typically multiple choice or essay?

Seriously mind-numbing reading…

Yea it’s brute memorization

I did find this in an old topic:

Four Objectives of GIPS:

In point forms (SAPS):

  1. Standard calculation and presentation of investment presentation 2) Accurate and consistent investment performance data 3) Promote fair, global competition 4) Self-regulation

The EOC’s really help to give an idea of what is important in this reading. Also, I have found that breaking this reading up into its different sections (Data Gathering, Performance Presentation, Composite Construction, Disclosures, Etc) helps as well. Reading straight through is mind numbing, but going section by section seemed a little easier for me.

I used a doc from a weblink ealier and found it extremely useful… It is just one page and easy to read. I can now answer any question . Cant find the link now…

GIPS is a nightmare. I’ve been trying to get through it for a week, but every time I read a page I realize I sped through it and have to restart it. It just won’t stick, it’s too boring.

Would appreciate that one-page link, because the way things are right now I’m going to freak.

search for Markcfail’s post.

Yes, Markcfail has some good posts. Thanks for the suggestion.

Copied from there:


Valuation for Portfolios: Before Jan 1, 2001 - quarterly. Jan 1, 2001 - Jan 1, 2010 - monthly, post Jan 1 2010 - date of all large external CF’s

Returns for Portfolios:Prior to Jan 1 2005 (original dietz). Jan 1 2005 - must use method that approximates returns that adjust for daily wtd external CFS (modified dietz, modified IRR). Jan 1 2010 - Date of all large external CF’s

Composite Returns: Jan 1 2006, Asset Weight portfolio returns using quarterly info. Jan 1 2010, Asset Weight using monthly [asset weightings use beginning FMV not ending]

Trade Date accounting required post Jan 1 2005

Carve out returns - prior to Jan 1 2010 must state how cash was allocated to the carve-out portion (beg period or strategic asset). Jan 1 2006 must disclose percent composite represented by carve-outs. Jan 1 2010 can only use carve-out returns in composite if carve-out is actually managed in a separate account w/ it’s own cash balance

Real estate - Quarterly valuation Begins Jan 1 2008, annual prior. Once every 3 years value by independent 3rd party professional, beg 2012 this 3rd party requirement becomes annual.

Private equity - Report both gross and net Since Inception IRR (SI-IRR). SI-IRR must use daily CF’s beg Jan 1 2011, for prior periods it can be monthly but must say so if the case. Valued annually by experienced individuals under direct supervision of Sr. Mgmt.

WRAP / SMA ports: must present net of the entire fee regardless of the fees contained w/in the wrap fee. If the wrap/sma is a style defined composite, must include all portfolios that fir this style regardless of the sponsor. If composite includes only sponsor ports, wrap/sma can choose to not show the presentation net of the entire fee, but must disclose the sponsor, and that the “sponsor-specific” presentation is only for use by the listed sponsor (to avoid people getting all confused thinking they can get that particular fee breakdown)

< 6 portfolios means dont need to report dispersion method < 5 ports means don’t need to list # ports Beg Jan 1 2011 3 yr Standard Deviation of composite AND benchmark returns needed


Original dietz (pre 2005, assumes midpoint received cashflow): (emv-bmv-cf)/(bmv+0.5cf)

modified dietz (2005 - 2010) (weights cfs for period held in port): (emv-bmv-cf)/(bmv+weight*cf), where weight = time held in port, example if 30 calender days and you get cashflow on day 20, you have it for 10/30 days or 0.3333 weight

Modified IRR (2005 - 2010) (also weights cfs for period held in port): Sum[Fi(1+R)^wi] —- weight calculated same as above, solve for R

For daily valuation beginning Jan 1 2010, use TWRR and geometrically link sub-period returns

Real Estate Capital Employed = Co +[sum (cf*wi)] —- again, weight calc as previously said

Capital Return =( MV1-MV0-Capex+Sales)/Capital Employed - because MV1 will be reduced by sales, but sales are inflows, you must add them back, likewise capex are outflows

Income Return = (Inc - NRE - INT-Tp) / Capital employed

Inc =gross int income, NRE = non-refundable expense, INT = int on debt, Tp = prop taxes

Capital return + Income Return = Total Return

Wording of Compliance Statement = (insert firm name) has prepared and presented this report in compliance with GIPS.

  1. Input Data: All necessary data must be collected and maintained, Valuations on Market Values Since 1/1/01 must be valued monthly, quarterly prior to that. 1/1/10 also on the date of any large external Cash Flow. Trade Date Accounting started on 1/1/2005 Consistent Start/end annual valuations as of 1/1/2006 Recommendations: Accrual accounting for Dividends and Management fees, monthly Valuations on last Business day or Calendar Day

  2. Calculation Methodology:

Time-weighted; geometrically linked returns 1/1/05 Approximite return, cash flows 1/1/10 Revalue at each large Cash Flow Asset weighted returns (not equally weighted) Must include cash / mmkts Net of actual NOT ESTIMATED trading costs 1/1/06 = at least Quarterly 1/1/10 = Monthly Recommendations: Return net of all non-reclaimable witholding taxes, reclaimable withholding taxes should be accrued Asset weighted portfolio returns at lease monthly Value portfolio at each large external Cash Flow

  1. Composite Construction: All: fee-paying, discretionary portfolios must be in at least 1 composite Non-fee-paying May be included No NONDISCRETIONARY PORTFOLIOS Terminated Portfolios are included in historic record up to last FULL MEASUREMENT PERIOD No simulated or Model portfolios, no ports below minimum asset level.

  2. Disclosures (26 of them) 1) How “Firm” is Defined 2) Availability of complete list and description of all composites 3) Min asset level below with ports are not included 4) Currency used to show performance 5) Presence, use and extent of leverage or derivatives 6) Weather returns are gross or net of fees 7) Details of withholding tax treatment 8) Any exchange rate inconsistencies 9) Conformity with local laws that differ from GIPS 10) Period and NATURE of non-compliance for periods pre-1/1/2000 11) Policy used to allocate cash to carve-out returns 12) Fee Schedule 13) % of assets under bundled fees 14) Content of bundled fees 15) If presented gross of fees, any fees deducted in addition to direct trading expenses 16) If net of fees, any fees deducted in addition to management fee and direct trading expenses 17) Additional information on calculating and reporting returns is available 18) Use and period of sub-advisors 19) Any significant events that could have affected performance 20) A description of the composite 21) Date and reason for “redefining of firm 22) Date and nature of composite redefinition 23) Changes to composite name 24) Composite creation DATE 25) Disclosure if last business/calendar day of month not used (until 1/1/2010) 26) Which internal dispersion measure used

1 Like

Thanks ftw!

Guys, its a 2 year old post and just ensure that GIPS has/nt changed from that year !

Can someone confirm this post still hold? I am about to puke reading GIPS

I think there are some 2012 dates we should add to this…

The most recent GIPS is the 2010 version so I assume this is OK

GIPS is literally the bane of my existence.

Wrote two posts here that I hope help.

-How to avoid memorization and score points on GIPS

And the second I’ve summarized here:

The Basics - What global investment performance standards (GIPS) are all about:

  • GIPS applies to firms, not individuals. An analyst cannot be “GIPS compliant”
  • The goal is fair representation and disclosure across investment opportunities for the public
  • It fosters the notion of “self regulation” within the industry
  • Each section includes “requirements” and “recommendations” for compliance. I would focus on the requirements if time is limited.
  • All actual, fee-paying, discretionary portfolios must be included in at least one composite
  • No non-discretionary portfolios, but non-fee paying portfolios may be included
  • Must calculate time-weighted total portfolio returns with external cash flows using daily weighting
  • Only actual assets, no model portfolios or simulations

The material on disclosures is easily testable along with some of the differences between the real estate and private equity sections.

Mandatory Disclosures under GIPS:

  • If they have met all requirements using the appropriate compliance statement (verbatim!)
  • Definition of the firm and description of composites (with creation date) and benchmarks
  • If they are presenting gross of fees and any fees deducted
  • If presenting net of fees, if model or actual management fees are deducted
  • Currency used in presentation
  • Measure of internal dispersion
  • Fee schedule
  • Use and extent of leverage, derivatives and short positions
  • Date, description and reason for redefinition of firm or composites
  • Minimum asset levels for composites
  • Treatment of withholding taxes, dividends, interest and capital gains
  • Bundled fees and the types of bundled fees
  • Sub-advisors and the period in which they were used
  • Any portfolios that were not valued at month end or last business day
  • Use of subjective unobservable valuation inputs
  • If no benchmark is used and why
  • Custom benchmarks used; description, date of creation, components, weights and rebalancing process
  • Whether the performance of a past firm or affiliation is linked (only appropriate if substantially all decision makers came over to new firm, the process remains substantially the same, and the firm has documentation of the performance history).
    Presentation and reporting guidelines under GIPS:
  • Total benchmark return for each period must be presented
  • Composite assets at the end of each year
  • Total firm assets or % of firm assets in each composite
  • Returns of less than one year cannot be annualized
  • % of composite in non-fee paying portfolios
  • % of composite in bundled fee portfolios
  • Five years of GIPS compliant performance or since inception if 5-years not available
  • Firms must add one year each year until at least ten years of data is reported

Be able to calculate the income return and capital return for real estate funds.

GIPS Valuation Hierarchy

Remember the valuation hierarchy for GIPS if the asset’s actual market value is not available. That is, you start with the top and if it isn’t an option you keep going down the list. The hierarchy is:

  • prices of similar assets in active markets
  • prices of similar assets in inactive markets
  • observable market inputs other than prices such as dividends, cash flows for pricing models
  • subjective or unobservable inputs like discount rates and projections