Reading 72: introduction to the global investment performance standards (GIPS)

Question 1

Which of the following statements most accurately describes the parties that GIPS are intended to apply to and serve?
GIPS apply to consultants who serve their existing and prospective clients.
GIPS apply to firms that issue securities and serve investment management firms.
GIPS apply to investment management firms and serve their existing and prospective clients.

Answer 1

GIPS apply to investment management firms. They are intended to serve prospective and existing clients of investment management firms and consultants who advise these clients. (LOS 72.a)

Question 2

For a composite to be constructed in compliance with GIPS, the portfolios included in the composite must:
have been managed by the firm for the full performance-reporting period.
be selected immediately after the last business day of the period for which the composite’s performance will be presented.
include all fee-paying, discretionary portfolios that are managed according to the same strategy, mandate, or investment objective.

Answer 2

To comply with GIPS, a composite must include all fee-paying, discretionary portfolios managed according to the same investment objective, strategy, or mandate. The composite or composites in which a portfolio will be included must be determined on an ex ante basis (i.e., before the period for which the composite’s performance will be calculated). A GIPS-compliant composite must include terminated accounts. (LOS 72.c)

Question 3

Verification of compliance with GIPS:
may be performed on single composites.
is required for a firm to claim GIPS compliance.
requires the verification report to be issued for the entire firm.

Answer 3

Verification of GIPS compliance is optional, but if a firm chooses to seek third-party verification, the report must be issued with respect to the whole firm. GIPS verification cannot be carried out for a single composite. (LOS 72.e)