GIPS Standards

Question 1

All-In-Fee

Answer 1

“A type of bundled fee that can include any combination of investment management fees, trading expenses, custody fees, and admin- istrative fees. All-in-fees are client specific and typically offered in certain jurisdictions where asset management, brokerage, and custody ser- vices are offered by the same company.”

Question 2

Benchmark

Answer 2

“A point of reference against which the compos- ite’s performance and/or risk is compared.”

Question 3

Benchmark Description

Answer 3

“General information regarding the investments, structure, and/or characteristics of the bench- mark. The description must include the key features of the benchmark or the name of the benchmark for a readily recognized index or other point of reference.”

Question 4

Bundled Fee

Answer 4

“A fee that combines multiple fees into one total or “bundled” fee. Bundled fees can include any combination of investment management fees, trading expenses, custody fees, and/or administrative fees. Two examples of bun- dled fees are wrap fees and all-in-fees.”

Question 5

Capital Employed (real estate)

Answer 5

“The denominator of the return calculations and is defined as the “weighted-average equity” (weighted-average capital) during the measure- ment period. Capital employed does not include any income return or capital return earned during the measurement period. Beginning capital is adjusted by weighting the external cash flows that occurred during the period.”

Question 6

Capital Return (real estate)

Answer 6

“The change in value of the real estate invest- ments and cash and/or cash equivalent assets held throughout the measurement period, adjusted for all capital expenditures (subtracted) and net pro- ceeds from sales (added). The capital return
is computed as a percentage of the capital employed. Also known as “capital appreciation return” or “appreciation return.””

Question 7

Carried Interest

Answer 7

“The profits that general partners are allocated from the profits on the investments made by the investment vehicle. Also known as “carry” or “promote.””

Question 8

Carve-out

Answer 8

“A portion of a portfolio that is by itself repre- sentative of a distinct investment strategy. It is used to create a track record for a narrower man- date from a multiple-strategy portfolio man- aged to a broader mandate. For periods beginning on or after 1 January 2010, a carve-outmust be managed separately with its own cash balance.”

Question 9

Closed-End Fund (real estate and private equity)

Answer 9

“A type of investment vehicle where the number of investors, total committed capital, and life are fixed and not open for subscriptions and/or redemptions. Closed-end funds have a capital call (drawdown) process in place that is controlled by the general partner.”

Question 10

Accrual Accounting

Answer 10

“The recording of financial transactions as they come into existence rather than when they are paid or settled.”

Question 11

Additional Information

Answer 11

“Information that is required or recommended under the GIPS standards and is not considered supplemental information.”

Question 12

Administrative Fee

Answer 12

“All fees other than trading expenses and the investment management fee. Administrative fees include custody fees, accounting fees, auditing fees, consulting fees, legal fees, performance measurement fees, and other related fees. (See “bundled fee”)”

Question 13

Committed Capital (real estate and private equity)

Answer 13

“Pledges of capital to an investment vehicle by investors (limited partners and the general partner) or by the firm. committed capital is typically not drawn down at once but drawn down over a period of time. Also known as “commitments.””

Question 14

Compliant Presentation

Answer 14

“A presentation for a composite that contains all the information required by the GIPS standards and may also include additional information or supplemental information. (See Sample compliant presentations in Appendix A)”

Question 15

Composite

Answer 15

“An aggregation of one or more portfolios man- aged according to a similar investment mandate, objective, or strategy.”

Question 16

Composite Creation Date

Answer 16

“The date when the firm first groups one or more portfolios to create a composite. The com- posite creation date is not necessarily the same as the composite inception date.”

Question 17

Composite Definition

Answer 17

“Detailed criteria that determine the assignment of portfolios to composites. Criteria may include investment mandate, style or strategy, asset class, the use of derivatives, leverage and/or hedging, targeted risk metrics, investment constraints or restrictions, and/or portfolio type (e.g., segre- gated or pooled, taxable versus tax exempt.)”

Question 18

Composite Description

Answer 18

“General information regarding the investment mandate, objective, or strategy of the compos- ite. The composite description may be more abbreviated than the composite definition but must include all key features of the composite and must include enough information to allow
a prospective client to understand the key characteristics of the composite’s investment mandate, objective, or strategy. (See the Sample List of Composite Descriptions in Appendix C)”

Question 19

Composite Inception Date

Answer 19

“The initial date of the composite’s performance record. The composite inception date is not necessarily the same as the composite creation date.”

Question 20

Composite Termination

Answer 20

“The date that the last portfolio exits a composite.”

Question 21

Custody Fee

Answer 21

“The fees payable to the custodian for the safe- keeping of portfolio assets. Custody fees are considered to be administrative fees and typically contain an asset-based portion and a transaction-based portion. The custody fee may also include charges for additional services, including accounting, securities lending, and/or performance measurement. Custodial fees that are charged per transaction should be included in the custody fee and not included as part of trading expenses.”

Question 22

Direct Investments (private equity)

Answer 22

“Investments made directly in private equity investments rather than investments made in fund investment vehicles or cash and/or cash equivalents.”

Question 23

Distinct Business Entity

Answer 23

“A unit, division, department, or office that is organizationally and functionally segregated from other units, divisions, departments, or offices and that retains discretion over the assets it manages and that should have autonomy over the invest- ment decision-making process. Possible criteria that can be used to determine this include:
■ beingalegalentity, ■ havingadistinctmarketorclienttype(e.g.,
institutional, retail, private client, etc.), and
■ using a separate and distinct investment process.”

Question 24

Distribution (real estate and private equity)

Answer 24

“Cash or stock distributed to limited part- ners (or investors) from an investment vehicle. Distributions are typically at the discre- tion of the general partner (or the firm). Distributions include both recallable and non- recallable distributions.”

Question 25

DPI (real estate and private equity)

Answer 25

“Since inceptiondistributions divided by since inceptionpaid-in capital. (See “reali- zation multiple”)”

Question 26

Evergreen Fund (private equity)

Answer 26

“An open-end fund that allows for on-going sub- scriptions and/or redemptions by investors.”

Question 27

Ex-Ante

Answer 27

Before the fact.

Question 28

Ex-Post

Answer 28

After the fact.

Question 29

External Cash Flow

Answer 29

Capital (cash or investments) that enter or exits a portfolio.

Question 30

External Valuation (real estate)

Answer 30

“An assessment of value performed by an inde- pendent external third party who is a qualified, professionally designated, certified, or licensed commercial property valuer/ appraiser.
“

Question 31

Fair Value

Answer 31

“The amount at which an investment could be exchanged in a current arm’s length transaction between willing parties in which the parties each act knowledgeably and prudently. The valua- tion must be determined using the objective, observable, unadjusted quoted market price for an identical investment in an active market on the measurement date, if available. In the absence of an objective, observable, unadjusted quoted market price for an identical investment in an active market on the measurement date, the valuation must represent the firm’s best estimate of the market value. Fair valuemust include accrued income.”

Question 32

Fee Schedule

Answer 32

“The firm’s current schedule of investment management fees or bundled fees relevant to the particular compliant presentation.”

Question 33

Final Liquidation Date (real estate and private equity)

Answer 33

“he date when the last portfolio in a compos- ite is fully distributed.”

Question 34

Firm

Answer 34

“he entity defined for compliance with the GIPS standards. (See “distinct business entity”)”

Question 35

Fund of Funds (private equity)

Answer 35

“An investment vehicle that invests in underly- ing investment vehicles. private equityfunds of funds predominately invest in closed-end funds and may make opportunistic direct investments.”

Question 36

General Partner (real estate and private equity)

Answer 36

“A class of partner in a limited partnership. The general partner (GP) retains liability for the actions of the limited partnership. The gen- eral partner is typically the fund manager, and the limited partners (LPs) are the other inves- tors in the limited partnership. The general partner earns an investment management fee that typically includes a percentage of the limited partnership’s profits.

Question 37

Gross-of-fees

Answer 37

“The return on investments reduced by any trad- ing expenses incurred during the period.”

Question 38

Gross-of-fees (real estate and private equity)

Answer 38

“he return on investments reduced by any trans- action expenses incurred during the period.”

Question 39

Income Return (real estate)

Answer 39

“The investment income earned on all investments (including cash and cash equivalents) during the measurement period net of all non-recoverable expenditures, interest expense on debt, and prop- erty taxes. The income return is computed as a percentage of the capital employed.”

Question 40

Internal Dispersion

Answer 40

“A measure of the spread of the annual returns of individual portfolios within a compos- ite. Measures may include, but are not limited to, high/low, range, or standard deviation (asset weighted or equal weighted) of portfolio returns.”

Question 41

Internal Valuation (real estate)

Answer 41

“A firm’s best estimate of value based on the most current and accurate information available under the circumstances. Internal valuation methodologies include applying a discounted cash flow model, using a sales comparison or replace- ment cost approach, or conducting a review of all significant events (both general market and asset specific) that could have a material impact on the investment.”

Question 42

Investment Management Fee

Answer 42

“A fee payable to the firm for the management of a portfolio. Investment management fees are typically asset based (percentage of assets), per- formance based (see “performance-based fee”), or a combination of the two but may take different forms as well. Investment management fees also include carried interest.”

Question 43

Investment Multiple (TVPI) (real estate and private equity)

Answer 43

“Total value divided by since inception- paid-in capital.”

Question 44

Large Cash Flow

Answer 44

“The level at which the firm determines that an external cash flow may distort performance if the portfolio is not valued. Firmsmust define the amount in terms of the value of cash/asset flow or in terms of a percentage of the portfolio assets or the composite assets.”

Question 45

Limited Partner (real estate and private equity)

Answer 45

“An investor in a limited partnership. The gen- eral partner is liable for the actions of the lim- ited partnership, and the limited partners are generally protected from legal actions and any losses beyond their committed capital.”

Question 46

Limited Partnership (real estate and private equity)

Answer 46

“The legal structure used by most private equity and real estateclosed-end funds. Limited partnerships are usually fixed life investment vehicles. The general partner manages the limited partnership pursuant to the partner- ship agreement.”

Question 47

Link

Answer 47

“1 Mathematical Linking: The method by which sub-period returns are geometrically combined to calculate the period return using the follow- ing formula:
Period return = [(1 + R1) × (1 + R2) … (1 + Rn)] – 1,
where R1, R2…Rn are the sub-period returns for sub-period 1 through n, respectively.
2 Presentational Linking: To be visually con- nected or otherwise associated within a com- pliant presentation (e.g., two pieces of information are linked by placing them next to each other).”

Question 48

Market Value

Answer 48

“The price at which investors can buy or sell an investment at a given time multiplied by the quan- tity held plus any accrued income.”

Question 49

Must

Answer 49

“A provision, task, or action that is mandatory or required to be followed or performed. (See “require/requirement”)”

Question 50

Must Not

Answer 50

A task or action that is forbidden or prohibited.

Question 51

Net-of-Fees

Answer 51

“The gross-of-fees return reduced by investment management fees (includ- ing performance-based fees and carried interest).”

Question 52

Open-end Fund (real estate and private equity)

Answer 52

“A type of investment vehicle where the number of investors and the total committed capital is not fixed and is open for subscriptions and/or redemptions. (See “evergreen fund”)”

Question 53

Paid-in Capital

Answer 53

“Capital inflows to an investment vehicle. Committed capital is typically drawn down from limited partners (or investors) over a period of time through a series of capital calls, which are at the discretion of the general part- ner or firm. Paid-in capital is equal to the amount of committed capital that has been drawn down since inception. Paid-in capital includes distributions that are subsequently recalled by the general partner or firm and reinvested into the investment vehicle.”

Question 54

Performance-based Fee

Answer 54

“A type of investment management fee that is typically based on the performance of the portfolio on an absolute basis or relative to a benchmark.”

Question 55

Performance Examination

Answer 55

“A detailed examination of a specific composite’s- compliant presentation by an independent verifier.”

Question 56

Performance Examination Report

Answer 56

“A performance examination report is issued after a performance examination has been performed and opines that a particular com- posite’scompliant presentation has been prepared and presented in compliance with the GIPS standards.”

Question 57

Periodicity

Answer 57

“The length of the time period over which a vari- able is measured (e.g., a variable that is measured at a monthly periodicity consists of observations for each month).”

Question 58

Pic Multiple (real estate and private equity)

Answer 58

“Since inceptionpaid-in capital divided by cumulative committed capital.”

Question 59

Portfolio

Answer 59

“An individually managed group of investments. A portfolio may be an account or pooled invest- ment vehicle.”

Question 60

Primary Fund (private equity)

Answer 60

“An investment vehicle that makes direct invest- ments rather than investing in other investment vehicles.”

Question 61

Private Equity

Answer 61

“Investment strategies include, but are not limited to, venture capital, leveraged buyouts, consolida- tions, mezzanine and distressed debt investments, and a variety of hybrids, such as venture leasing and venture factoring.”

Question 62

“Professionally designated, certified, or licensed com- mercial property valuer/ appraiser
(real estate)”

Answer 62

“In Europe, Canada, and parts of Southeast Asia, the predominant professional designation is that of the Royal Institution of Chartered Surveyors (RICS). In the United States, the professional designation is Member [of the] Appraisal Institute (MAI). In addition, each state regulates real estate appraisers and registers, licenses, or certifies them based on their experience and test results.”

Question 63

Proprietary Assets

Answer 63

“Investments owned by the firm, the firm’s man- agement, and/or the firm’s parent company that are managed by the firm.”