GIPS Flashcards
Why was GIPS created
To make meaningful comparisons of manager investment performances without misleading practices
Misleading Practices in reporting
- Representative Accounts
(represent only top performers, remove outliners/low performing funds) - Survivorship Bias
(average history, not including terminated funds) - Varying Time Periods
(presenting time periods with stellar performance)
What is GIPS
“A practitioner-driven set of ethical principles that
establish
a standardized, industry-wide approach
for
investment firms to follow
in
calculating and presenting
their
historical investment results to prospective clients”
To whom does GIPS apply to
Investment Management Firms that ONLY manage assets.
It should be a firm wide process, not a single product/or composite compliance.
Finally, comply with ALL GIPS rules, not just a select few.
A multi-national financial services holding company is unlikely to be solely operating as an investment firm, and the scope of the business could also make it more difficult to claim compliance on a firm-wide basis.
Who is served by the GIPS
The clients
- They get a historical track record that is complete and fairly presented
- Easily comparable when the same standard is used by different research companies
What are composites
Composite is an aggregation of one of more portfolios
managed
according to a similar investment
mandate, objective or strategy
How to construct a composite?
The construction of the composite should be done by a
pre-established criteria,
not an ex-ante basis.
This prevents the firm from excluding bad-performers
Purpose of Composites in Performance Reporting
Easily comparable across the board/industry
Requirements for verification
Not mandatory, but once a GIPS claim has been made, it is recommended an independent 3rd party perform a verification to increase confidence in the firm’s compliance claim
Accrual accounting
The recording of financial transactions as they come into existence rather than when they are paid or settled
Additional Information
Information that is required/recommended under GIPS
and
is not considered supplemental information
Administrative Fee
All fees other than Trading Expenses, Investment Management Fees. Includes \:-Custody, \:-Accounting, \:-Auditing, \:-Consulting, \:-Legal, \:-Performance measure fees \:-and other fees
All-In-Fee
A type of bundled fee that can include any combination of
1) Investment Management Fees,
2) Trading Expenses,
3) Custody
4) & admin fees.
All-In-Fees are
:- client specific
:- and typically offered in certain jurisdictions where
asset management, brokerage and custody services
are offered by the same company
Benchmark
A point of reference
against
which the composite’s
performance and/or risk is compared
Benchmark Description
General information regarding
the
investments, structure, and/or characteristics
of the benchmark.
The description must include the key features of the benchmark for a readily recognized index or other point of reference
Bundled Fee
A fee that combines multiple fees into one total fee.
Can include any combo of investment, trading, custody, and admin fee. Ex: Wrap Fee & All-In-Fees
Capital Employed (Real Estate)
- Denominator of the return calculations
- Defined as the “weighted average equity” during the measurement period.
- Does not include any income or capital return earned during the measurement period.
- Beginning capital is adjusted by weighting the External CF that occurred during the period
Capital Return (Real Estate)
Change in value of the Real Estate Investment
and
cash and/or cash equivalent assets held throughout
the measurement period,
adjusted for capital expenditures (-)
and
net proceeds from sales (+).
Computed as a percent of Capital Employed.
Carried Interest
Real Estate & Private Equity
Profits that General Partners are allocated
from
investment profits made by the investment vehicle.
Carve-Out
Portion of portfolio that is representative of a distinctive investment strategy.
Used to create a track record for a narrower mandate
from
a multiple-strategy portfolio managed to a broader mandate
Closed-end Fund (Real Estate & Private Equity)
A type of investment vehicle where the \:- # of investors, \:- total committed capital \:- and life are fixed and not open for subscriptions and redemption.
Close-ended funds have a capital call process in place, controlled by the general partner.
Committed Capital (Real Estate & Private Equity)
Pledges of capital to an investment vehicle by investors or by the firm.
Not drawn at once, but over time
Compliant Presentation
A presentation for a composite
that
contain all the information required by the GIPS
and
may also include
additional information or supplemental information
Composite
An aggregate of one or more portfolios
managed according
to a similar investment mandate, objective or strategy
Composite Creation Date
Date when the firm first groups one or more portfolios to create a composite.
The composite creation date is not necessarily the same as the composite inception date
Composite Definition
Detailed criteria that determine the assignment of portfolios to composites.
Criteria may include :-investment mandate, \:-style, asset class, \:-use of derivatives, \:- leverage, \:-investment constraints, \:- taxable, \:- pooled, etc
Composite Description
An abbreviated version of the composite definition, with all the pertinent information regarding
:-mandate,
:-objective
:-& strategy
so an prospective client understands what it is all about.
Composite Inception Date
The initial date of the composite’s performance record.
Not necessarily the same as composite creation date
Composite Terminate Date
The date the last portfolio exits the composite
Custody Fee
The fees payable to the custodian for the safekeeping of the portfolio assets.
Custody fees are considered to be administrative fees and typically contain an asset-based portion and a transaction based portion.
May include charges for additional fees, including accounting, securities lending and performance measurements.
Custodial fees are per transaction based. Not part of trading expenses
Directive Investments (Private Equity)
Investments made directly in private equity investments rather than in fund investment vehicles or cash &/or equivalents.
Distinct Business Equity
A unit, division, dept, or office that is organizationally & functionally segregated from others and retain discretion over the assets it manages and should have autonomy over the investment decision making process.
Could be a legal entity, have distinct market or client type or have different investment process
Distribution (Real Estate & Private Equity)
Cash or stock distributed to Limited Partners from an investment vehicle. Distributions are at the discretion of the General Partner. Usually recallable and non-recallable distributions
DPI (Real Estate & Private Equity)
Since Inception Distributions
divided by
Since Inception Paid In Capital
Evergreen Fund (Private Equity)
An open-ended fun that allows for on-going subscriptions and/or redemption by investors
Ex-ante
before the fact
Ex-post
after the fact
External CF
Capital that enters or exits the portfolio
External Valuation (Real Estate)
An assessment of value performed by an independent external 3rd party who is a qualified, professionally designated, certified or licensed commercial property valuer/appraiser
Fair Value
The amount at which an investment could be exchanged in a current arm’s length transaction between willing parties with knowledge and prudence. Valuation must be determined using objective, observable, unadjusted quoted market price for an identical investment in the active market. If unavailable, must use best estimate. Fair value must include accrued income
Fee Schedule
Firm’s current schedule of investment management fees or bundled fees relevant to the particular compliant presentation
Final Liquidation Date (Real Estate & Private Equity)
The date when the last portfolio in a composite was fully distributed
