S18 Flashcards
From X, portfolios must be valued according…
Jan 1, 2011, with the definition of fair value or GIPS valuation principles (not book of cost values)
From X, Y date accounting should be used
From Jan 1 2005 trade date accounting (not settlement date accounting)
For fixed income securities what accounting to be used ?
accrual accounting
Portfolios must be valued at least
quarterly - before Jan 1 2001
monthly - from Jan 1 2001
on the date of large CF AND end of the month - from Jan 1 2010
firms composites and portfolios from composites must have what valuation dates
consistent beginning and ending annual valuation dates from Jan 1 2006
Dietz return calculation was acceptable until
Jan 1 2005
Modified Dietz or Modified IRR
required after Jan 1 2005
all actual fee paying discretionary portfolios …
must be included in at least one composite
firm must include a terminated portfolio in the historical performance of appropriate composite until
up to the last full measurement period that the portfolio was under management (or last full period or discretionary managmenent)
porftolio can be switched from one composite to another if
- client revises mandate, objective, strategy
- original composite is redefined and doesn;t fit the portfolio
carveout must not be included in a composite unless
it is managed separately with its own cash balance
carveout had disclose cash allocation policy prior to
Jan 1 2010
percentage of composite composed of carveouts as of each annual period end has to be shown in presentations starting with
Jan 1 2006 and ending Jan 2011.
gips compliance sentense
Firm X claims compliance with Global Investment Performance Standards (GIPS (R) )_ and has prepared and presented this report in compliance with the GIPS Standards. Firm X has not been independently verified.
firms must disclose valuation using subjective unobservable inputs from
Jan 2011
when presenting gross of fees returns, firms must disclose if they
deduct any other fees in addition to the actual trading expnses
when presenting net of fees returns firms must disclose if
any other fees are deducted in addition to the actual trading expenses and the investment management fee.
real estate must be valued at least quarterly from
2008
real estate must be valued on calendar quarters from
2010
external valuation for real estate needed
each 36 months prior to 2012
each 12 months from 2012
real estate return components
capital return + income return
capital return (RE) =
((V1-V0) - Capex + Sales ) / Capital Employed
income return (RE) =
= (investment income - nonrecoverable expenditures - interest - taxes ) / Capital employed
Annualized since inception SI IRR must be calculated for private equity from
2011 - using daily CF
before 2011 - either daily or monthly
For PE composites, firms must present annually
cumulative commited capital
since inception paid in capital
since inception distribution
formulas
- total value to since inception paid in capital (aka investment multiple)
- since inception distributionto since inception paid in capital (aka realization multiple)
- since inception paid in capital to cumulative commited capital (PIC multiples)
- residual value to since inceptoin paid in capital (unrealized multiple)
ads with claim of compliace and presenting performance …
MUST present one of the following set of returns
PERFORMANCE
- 1 3 5 year annualized composite returns through the most recent period
- period to date composite returns in addition to 1 3 5 annualized composite returns through the same period of time as presented in the corresponding compliant presentation
- period to date composite returns in addition to 5 years of annual composite returns calculated through the same period of time as presented in the corresponding compliant presentation
BENCHMARK
- benchmark description
- benchmark performance for same periods as composite performance
LEVERAGE
- use of leverage
verification does not provide assurance that
specific composite returns are correctly calculated and presented
GIPS are
ethical standard that promote fair representation and full disclosure of an investment firm’s performance history
GIPS require following items to be contained in the composite performance presentation:
- annual composite and benchmark total returns for each annual period
- number of portfolios in the composite (if more than 5) at period end
- amount of assets in the composite at the annual period end (as % composite in total assets or total firm assets at the end of each annual period
- a measure of dispersion of individual portfolio returns withing the composite
- (from 2011) 3 year standdev of composite and benchmark returns
performance of past firm must be linkedn to represent historical record of new firm if:
- substantially all decision makers remain in place
- decision making process remains intact and independent
- new firm has records that document and support the reported performance
verification is a process by which
an independed verifier assesses if
- firm has complied with all the composite construction requirements on a firm wide basis
- firm policies and procedures are designed to calculate and present performance in compliance with GIPS
what performance is preferred - net or gross of fees
gross of fees
benefits from GIPS
- the ability to compare the performance of firms operating in different countries with different sets of established practices
- provide managers with the ability to compete fairly in fo reign markets
GIPS Objectives
- 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.
- Facilitate a comparison of the historical performance of investment management
firms so that clients can make educated decisions when hiring new managers. - Encourage full disclosure and fair global competition without barriers to entry.
- Encourage self -regulation.
recommended, not required GIPS
- should disclose material changes to valuation policies and/ or methodologies.
- should disclose material changes to calculation policies and/or methodologies.
- should disclose material diff erences between the benchmark and the composite’s investment mandate, obj ective, or strateg y.
- should disclose the key assumptions used to value portfolio investments.
- If a parent company contains multiple defined firms, each firm
within the parent company should disclose a list of the other firms contained within the parent company. - prior to January 1, 20 11, firms should disclose the use of subjective unobservable inputs fo r valuing portfolio investments if the portf olio investments valued using subjective unobservable inputs are material to the composite.
- prior to January 1, 2006, firms should disclose the use of a sub-adviser and the periods a sub-adviser was used.
- should disclose if a composite contains proprietary assets.
acceptable measures of dispersion
- The range of annual returns.
- The high and low annual returns.
- lnterquartile range.
- The standard deviation of equal-weighted annual return.
- The asset-weighted standard deviation of annual returns.
capital employed in Real estate is
CF0+ weighted intraperiod CF
private equity must annually report both
gross of fees and net of fees returns
