GIPs Flashcards
Profession
an occupational group that has specific education, expert knowledge, and a framework of practice and behavior that underpins community trust, respect and recognition.
Emphasize an ethical approach, the importance of good service, and empathy with the client.
Professions establish trust by:
(normalize behavior, high standard, client interest first, expert knowledge, encourage education, monitor conduct, volunteer, self-regulated integrity)
trust ( care, transparency, and integrity)
- normalizing practitioner behavior
- providing a service to society that exceeds the prescribed codes and standards
- maintaining a client focus
- having high standards for entry
- Possessing a body of expert knowledge
- encouraging continuing education
- monitoring professional conduct through self-regulation to maintain industry integrity.
- being collegial
- having recognized overseeing bodies
- encouraging the engagement of members by encouraging volunteerism.
Mission of CFA institute:
to lead the investment profession globally, by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society.
code of ethics expectation
act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession
integrity, client interest first
use reasonable care and exercise independent professional judgment with analysis
practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession
promote integrity and viability of the global capital markets for the ultimate benefit of the society
maintain and improve professional competence
ethical decision making framework 4 phases
- identify fact from opinion
Identify stake holders and responsibility to them - identify behavioral biases and situational influences that can affect thinking and decision-making ability
- make a decision and act on it
- access the outcome by reflecting on whether or not it occurred as anticipated and why
global trends that challenge the investment professionals:
- consumerism has led clients to buy inv. products in the same manner as they buy other consumer items, making invest. mgmt demanding
- regulations have tended to grow sticker globally as consumers have demanded additional protection
- globalization has benefits to the extend that professional bodies to create consistent standards across the global
- technological innovation is rapidly changing the role of the investment professional and the work relationship with the client, requiring new skills and new standards of conduct.
AMC asset manager code
is global, voluntary, and applies to investment management firms.
Adoption demonstrates firm is placing client interest first.
It’s flexible and firms must develop own policies and procedures, tailored to their business and clients, to ensure compliance with the AMC.
6 Components to AMC conduct:
- loyalty to clients
conflict of interest
confidentiality
independent and objective
2. investment process and actions reasonable care no price manipulation fair dealing adequate basis for recommendations understand client's objective and constraints
- trading
material nonpublic info - firewall client first soft dollar best execution fair trade allocation
4. risk mgmt, compliance and support 3rd party verification record retention policy and procedure business continuity plan that meet, backup account info, plan to monitor analyze and trade, communication plans with key vendor and suppliers, employee communication and coverage, client communication plans
- performance and valuation
fair ,accurate, relevant, timely, and complete performance
fair market price when available (use 3rd party to avoid conflicts of interest) - disclosures
communicate accurately with clients on a regular basis
comply with legal and regulatory requirements regarding capital markets
conflicts of interest
investment process
management fees and client costs
disclose any unusual expense
use plain languages
disclose all fees charged and provide itemized charges if requested
disclose average or expected fees to prospective clients
soft dollar and bundle fees, how they benefit clients
performance reporting, quarterly within 30 days of quarter end is recommended
shareholder voting policy and procedure
trade allocation policies
audit result
risk management process and changes to the process, risk metrics the client will receive
GIPs characteristics
voluntary, minimum standards for perf. presentation
only investment mgmt firms may claim compliance, individuals may not cliam GIPs compliance
include all actual fee-paying, discretional portfolios in composites in same strategy/style
minimum of 5 years of GIPs compliant history or since inception if less than 5 years
after at least 5 years, add annual performance each year going forward up to 10 years, at a minimum
gips only after 1/1/2000
adoption of 10th edition effective 1/1/2010
GIPs objective
establish global, industry-wide best practices for the calculation and presentation of investment performance
facilitate the accurate and unambiguous presentation of investment performance results to current and prospective clients
comparison of historical performance
encourage full disclosure and fair global competition without barriers to entry
encourage self-regulation
benefit to managers and clients
ability to compare the performance of firms operating in diff. countries with diff set of established practices
provide more reliable measure of past investment performance result
provide managers with the ability to compete fairly in foreign markets
firm can identify weaknesses in internal management controls during the implementation to GIPs
total firm asset
fair value of all assets under management, including non-fee-paying and non-discretionary portfolio
firm is
an investment firm, subsidiary, or division held out to clients or potential clients as a distinct business entity.
distinct business entity
unit, division, department, or office that is organizationally or functionally separated from other units, divisions, departments, or offices and that retains discretion over the assets it manages and that should have autonomy over the investment decision-making process.
Compliance is to MUST meet all requirements, no partial compliance
only investment firms can claim compliance with GIPs, not a pension plan or a consultant
input data must be stored and maintained
input data must be valued at fv after 1/1/2011
input data/performance presentation at least valued monthly and on the date of all large external cash flows
less frequently for real estate and private equity, at least quarterly
firm must define large eithr on a value or % for each portfolio of composite
input data/firms must be valued as of the calendar month-end or the last business day of the month
firms must use trade-date accounting 1/1/2005
input data recommendation
value at each external cash flow
independent 3rd party valuation
dividends from equities should be accrued as of the ex-dividend date
presenting net of fee, firms should accrue investment management fees
calculation requirement - at least monthly and on date of any large external cash flow and time weight the subperiod
time-weighted return can’t be used if firm control the timing of ECFs, IRRmust be used for return computation.
add income/realized gain loss, unrealized g/s to bv and ev, cash and cash equivalents
for FI, include accrued interest
time-weighted computation must be used for external large cash flows
all return calculations must be gross of fees
bundle fee includes some combination of trading expense, management fee, and other fee. If trading and management expense cannot be separated out, DEDUCT the entire bundle fee
must label gross of fee if include trading but not management fee
label net of fee if include trading and management fee
must disclose what’s included in bundle fee
calculation recommendation
returns should be calculated net of non-reclaimable wht on dividends, interest, and cap gains. Reclaimable wht should be accrued.
discretionary portfolio
- actual, fee paying, dicretionary portfolio must be included in at least on composite
nondiscretionary portfolio must not be included in a firm’s composite
all return calculations must be gross of fees
bundle fee includes some combination of trading expense, management fee, and other fee. If trading and management expense cannot be separated out, DEDUCT the entire bundle fee
must label gross of fee if include trading but not management fee
label net of fee if include trading and management fee
must disclose what’s included in bundle fee
must disclose % of the composite asset represented by bundled-fee portfolios if included in the composite
discretionary portfolio
- actual, fee paying, discretionary portfolio must be included in at least one composite
nondiscretionary portfolio must not be included in a firm’s composite
non-fee-paying portfolio maybe included but are required to disclose the % of composite assets represented by non-fee-paying portfolios
composites must be defined according to similar investment objectives and strategies. full composite definition must be made available on request.
genetic definition such as equity of fixed income maybe too broad to enable clients to make comparison, so qualifiers such as sector, benchmark, capitalization, style maybe useful.
composite must included only assets under management within the defined firm.
not permitted to link simulated or model portfolio with actual performance.
must include new portfolio timely start of the next full performance measurement period, must establish policy for the inclusion of new portfolio on a composite-by composite basis and apply consistently
terminated portfolio must be included in historical returns up to the last full measurement period it was under mgmt
persenting annual return for a terminal portfolio with less than a full year performance is not allowed
historical record of portfolio must remain with the origianl composite
can’t included below minimum asset level in composite, portfolio may drop below for a short period and a policy need to be in place to identify % or period of breaches after which a portfolio should be removed from the composite
to remove effect of significant cash flow, firms should use temporary new accounts
claims compliance with GIP@, and has prepared and presened this report in compliance with the GIPS standards. Has been independetly verified for the period date. This verification report is available upon request.
must disclose defination of the firm used to determine total assets and firm-wide compliance
must disclose composite description
must disclose benchmark description
disclose if any other fees are deducted in addition to trading expense if gross-of-fees is presented
net of fee presentation, must disclose
if any other fees are deducted in additon ot mgmt fee and trading expense
if model or actual inv. mgmt fees are used
if return are net of performance based fees
must disclose currency used to express performance
must disclose which measure of internal dispersion is used
must disclose the fee schedule appropriate to the compliant presentation
must disclose composite creation date
must disclose firm’s list of composite descrition is available upon request
must disclose the policies for valuing portfolios, calculating performance, preparing compliant presentations are available upon request
must disclose use of leverage
must disclose reason for redefinition of firm/composite
must disclose name change of composite
must disclose minimum asset level, and change to the minimum asset level
must disclose treatment of wht, interest income, capital gains
must disclose manner in which local laws and regulations conflict with GIPs standards
must disclose use of subjective unobservable inputs for valuing portfolio invesments
must disclose valutaion hierachy if different from GIPs recommended hierarchy
must disclose why no benchmark is presented
must disclose the date of reason description of a benchmark change
custom benchmarks must be disclosed the components, weights, and rebalancing process
must disclose how the firm defines a significant cash flow
must disclose 3-year annualized ex post standard deviation using monthly returns for the composite and benchmark
must disclose if performance from a past firm or affiliation is linked to the performance of the firm
must disclose at least 5-yr of annual performance
clearly identified as gross or net
non full year performance can’t be annualized
must disclose termination date
must disclose annual return for benchmark
must disclose number of portfolio in the composite at each year-end, if contain 5 or less, this is not requried
must disclose amount of assets in composite at end of each annual period
must disclose either total firm assets/composite asset as % or firm assets at each annual period end
must disclose a dispersion of individual portfolio return for each annual period, not required if less than 5 portfolios
portfolio added/deleted within period are not included in the calculation of internal dispersion
internal dispersion: range of annual return high low annual returns interquartile range std of equal-weighted annual return asset-weighted std of annual return
must disclose past record linked to affiliate if all 3 are met:
- all investment decision makers are employed by the new firm
- decision making process remains substaintially intact and independent within the new firm
- new firm has records that document and support the reported performance
if firm acquired another firm without compliance, it has one-year to make it in compliance
general provision of gips applies to open-end private equity and evergreen funds, MBS, REITs
REAL ESTATE ONLY -
must be value in fair value
must be valued at least quarterly
must have an external valuation done at least every 12 month or if a client agreement states otherwise, at least once every three years
income and capital component returns must be calculated separately using geometrically linked time-weighted rates of return
composite return must be calculated at least quarter by asset-weight using time-weighted rates of return
must provide a description of discretion - if firm has sole or sufficient discretion to make major decisions regarding the investments
general provision of gips applies to open-end private equity and evergreen funds, MBS, REITs
REAL ESTATE ONLY -
must be value in fair value
must be valued at least quarterly
must have an external valuation done at least every 12 month or if a client agreement states otherwise, at least once every three years
income and capital component returns must be calculated separately using geometrically linked time-weighted rates of return, must be disclosed with clearly identified gross or net of fee. at least gross should be disclosed
composite return must be calculated at least quarter by asset-weight using time-weighted rates of return
must provide a description of discretion - if firm has sole or sufficient discretion to make major decisions regarding the investments
Gips/nongips compliant can’t be linked
composite with more than 5 portfolios must disclose high low of the portfolio time-weighted rates of return as the internal dispersion number
% of composite assets valued using an external valuators as of the end of each annual period must be disclosed
close-end fund reporting -
vintage year of 1st drawdown or capital call/contribution year
composite must be defined by grouping accounts with similar objective, strategy, vintage yar.
final liquidation date for liquidated composite
frequency of cash flows used in the SI-IRR calculation
periods <1 yr must present net of fee si-irr and reporting must continue until liquidation of the composite
at the end of each reporting period, must disclose:
committed capital and since inception PID
distributions
TVPI, DPI, PIC, RVPI
PRIVATE EQUITY -
valued at least annually at fair value
SI-IRR must be calculated using daily/monthly cash flow
net of fees return must be calculated with consideration given to mgmt fees and carried interest
fof must be net of all partnership fees, fund fees, expenses, and carried interest
composite definitions must remain consistent
primary funds must be included in at least one composite defined by vintage year and investment strategy, mandate, or objective
fof must be included in at least one composite defined by vintage year and/or investment strategy, mandate, objective
disclose vintage year and its definition
liquidation date
both net and gross of fee annulized SI-IRR of the composite for each year since inception and through the final liquidation date
cumulative annualized SI-IRR ofr the bmk that reflects the same strategy and vintage year of the composite must be presented for the same periods for which theh composite is presented
% of composite assets invested in fof/ primary fund composite
fair value hierarchy (GIPs)
firm must disclose their valuation policies and hierarchy if differently
- market value
- quoted prices for less active traded identical or very similar investment
using market based inputs to estimate price (pe, did yld) - price estimates based on input that are not directly observable (discounted free cash flow price est based on projected cash flow and assumed discount rate)
advertising guideline
description of the firm
how to obtain a presentation that complies with the requirements of GIPS standards and/or list
and description of all firm composite
gips advertising guidelines compliance stamens
The Code requires that the manager must be able to explain the investment strategy to clients in a way that the client can understand and determine for themselves the suitability of the investment. Jones has failed to do this by relying solely on the inadequate explanation of Smith.
The Code specifies that when using complex derivative products, the manager should conduct stress testing to determine how the investment will react under different scenarios. The Code specifies this should happen regardless of any client request.
The SI-IRR must be presented both gross and net of fees.
Since inception paid-in capital must be shown not just the capital drawn down for the year.
If the firm sets a mini- mum asset level for portfolios to be included in a composite, the firm must not include portfolios below the minimum asset level in that composite.
The firm must disclose the presence, use, and extent of leverage, derivatives and short positions, if material, including a description of the frequency of use and characteristics of the instruments sufficient to identify risks
If the firm has included non-fee-paying portfolios in its composite, the percentage of the composite assets represented by non-fee-paying portfolios must be disclosed as of the end of each annual period
The composite creation date must be disclosed
because the composite represents a global investment strategy, the presentation must include information about the treatment of withholding taxes on dividends, interest income, and capital gains, if material (I.4.A.20).
A fee schedule appropriate to the compliant presentation must be disclosed (I.4.A.9).
Both a composite description and benchmark description must be disclosed (I.4.A.3-4).
If a custom benchmark or combination of multiple benchmarks is used, the firm must disclose the benchmark components, weights and re-balancing process.”
If a composite includes portfolios with bundled fees, the firm must present the percentage of composite assets represented by portfolios with bundled fees as of each annual period end.
Verification cannot be carried out on a composite, and, accordingly, does not provide assurance about the performance of any specific composite. Firms must not state that a particular composite has been “verified” or make any claim to that effect
The Code and Standards apply to individual members and candidates of CFA Institute, but firms are encouraged to adopt the Code and Standards as part of their firm code of ethics.
The CFA Institute Asset Manager Code has been drafted specifically for firms.
