GIPS (11.3.24)

Question 1

Verification

Answer 1

An investment firm’s voluntarily engaging an independent third party to test the firm’s design and implementation of certain performance measurement policies and procedures

Question 2

Can GIPS compliance be claimed for specified composites

Answer 2

No

Question 3

Can GIPS compliance be claimed for specific pooled funds

Answer 3

No

Question 4

Can GIPS compliance be claimed for specific portfolios

Answer 4

no

Question 5

Can GIPS compliance be claimed for the entire firm

Answer 5

yes

Question 6

Composite

Answer 6

aggregation of one or more portfolios that are managed according to a similar investment mandate, objective, or strategy

Question 7

Segregated Account

Answer 7

Portfolio owned by a single client (SMA)

Question 8

Pooled fund

Answer 8

1) Broad distribution: regulated under framework that would permit general public to or hold the pooled fund’s shares and not exclusively offered in one-on-one presentations (mutual funds)

2) Limited distribution: anything not a broad distribution (PE or HF)

Question 9

5 Objectives of GIPS standards

Answer 9

1) Promote investor interests and instill investor confidence

2) Ensure accurate and consistent data

3) Obtain worldwide acceptance of a single standard for calculating and presenting performance

4) Promote fair, global competition among investment firms

5) Promote industry self-regulation on a global basis

Question 10

8 Standards of GIPS

Answer 10

1) Fundamentals of compliance

2) Input data and calculation methodology

3) Composite and pooled fund maintenance

4) Composite time-weighted return report

5) Composite and money-weighted return report

6) Pooled fund time-weighted return report

7) Pooled fund money-weighted return report

8) GIPS advertising guidelines

Question 11

Definition of the firm

Answer 11

Investment firm, subsidiary or division held out to the public as a distinct business entity

Question 12

Total firm assets

Answer 12

Aggregate fair value of all assets (whether or not discretionary or fee-paying)

does not include advisory-only assets or uncalled committed capital

Question 13

How often does the TMR need to be calculated (non private markets)

Answer 13

at least monthly as of the calendar month end or last business day of the month

if returns are not calculated daily and portfolio receives an intra-month large cash flow, portfolio must be valued and a sub-period return must be calculated at the time of the large cash flow

Question 14

How often does TWR need to be calculated (private markets)

Answer 14

at least quarterly

Question 15

Large cash flow

Answer 15

External cash flow of such size that it may distort the return if the portfolio is not valued and sub-period return is not calculated at the time of the cash flow

may be defined either relative to an absolute monetary threshold or as a percentage of the portfolio or composite assets

Question 16

How often does TWR need to be calculated (pooled fund)

Answer 16

at least annually

Question 17

TWR Formula

Answer 17

(V1 - V0) / V0

Question 18

TWR using Modified Dietz method

Answer 18

(V1 - V0 - CF) / (V0 + sum of each flow multiplied by its weight)

Question 19

When would a firm choose MWR over TWR

Answer 19

If the firm has control over the external cash flows AND 1) the portfolios are closed-end, fixed life, or fixed commitment OR
2) illiquid investments are significant part of the investment strategy

Question 20

How often do MWR need to be calculated

Answer 20

annualized, since inception, annually

returns for periods of less than one year must not be annualized

Question 21

Do custody fees count as transaction fees

Answer 21

no

Question 22

When must composites for institutional investors reduce the gross-of-fees return by the entire amount of the bundled fee

Answer 22

if transactions costs cannot be identified and segregated from a bund fee

Question 23

Definition of fair value

Answer 23

Amount at which an investment could be sold in an orderly, arm’s length transaction between willing parties and must include any accrued income on fixed-income securities and all other investments that earn interest income

Question 24

3 Ways of calculating time-weighted composite returns

Answer 24

1) Asset-weighting the individual portfolio returns using beginning-of-period values
2) Using a method that reflects both beginning-of-period values and external cash flows
3) Using aggregate return method

Question 25

Criteria for including portfolio in composites

Answer 25

1) All actual, fee-paying, discretionary segregated accounts must be included in at least one composite

2) Discretionary segregated accounts that are non-fee paying may be included in composites, but neither nondiscretionary not simulated or model portfolios may be included in any composite

3) Pooled funds must be included in any composite for which they meet the composite definition

4) A composite must include all portfolios that meet the composite definition

Question 26

when can a portfolio be switched from one composite to another

Answer 26

1) Client revises the mandate, objective, or strategy governing the investment of portfolio assets and the guideline changes are documented

2) The original composite is redefined in such a way that the portfolio no longer fits it

3) In the event of significant cash flows, a portfolio may be ~temporarily~ removed from the composite

Question 27

Two types of GIPS Reports

Answer 27

1) GIPS Composite Report
2) GIPS Pooled Fund Report

Question 28

For each GIPS Composite report that includes time-weighted returns, how long do firms need to show annual performance

Answer 28

5 years and build to 10 years

if not 5 years of data, present returns since inception and build to 10 years

Question 29

Elements to include in GIPS Composite report that presents a time-weighted return

Answer 29

1) Composite and benchmark annual returns for all years
2) Number of portfolios (if 6 or more) in the composite at each period end
3) The amount of assets in the composite
4) The amount of total firm assets at the end of each period
5) A measure of internal dispersion of individual portfolio returns for each annual period if the composite contains six or more portfolios for the full year
6) If monthly composite returns are available, a three-year annualized ex post standard deviation of the composite and benchmark returns as of each annual period end

Question 30

Internal dispersion

Answer 30

a measure of the spread of the annual returns of individual portfolios within a composite

Question 31

Acceptable measures of internal dispersion

Answer 31

1) High/low range
2) Equal weighted standard deviation of portfolio returns
3) Asset-weighted standard deviation of portfolio returns

Question 32

How does GIPS treat cash

Answer 32

Returns from cash and cash equivalents must be included in all return calculations, even if the firm does not control the specific cash investments

Question 33

Transaction costs

Answer 33

brokerage commissions, exchange fees, and/or taxes, and/or bid-offer spreads from either internal or external brokers

Question 34

What is the guideline for when new assets should be included in a composite

Answer 34

“on a timely and consistent basis after each portfolio comes under management”

Question 35

when must returns for terminated portfolios be calculated for

Answer 35

through the last full measurement date

if terminated in mid month, use end of previous month

Question 36

when a composite has a minimum portfolio value and the value of the portfolio falls below the minimum, what is the proper action

Answer 36

exclude that portfolio from that composite for the time period that it is below the minimum level

Question 37

minimum number of portfolios in a composite

Answer 37

no minimum or maximum

Question 38

must a firm disclose the number of portfolios in a composite, and how often

Answer 38

yes, annually, unless there are 5, then you don’t need to dislcose

Question 39

4 Requirements that allow portability

Answer 39

1) substantially all of the decision makers are employed at the new firm

2) the decision making process remains in tact with the new firm

3) the new firm maintains documents that support the reported performance

4) there must be no break in track record between old firm and new firm

If only first three are met, the new firm may use the performance of the old firm, but not link the two

Question 40

what is the purpose of porting a portfolio

Answer 40

to link the performance of a past firm to a new firm