Section 6 - R34 / R35 - Asset Mgr Code & GIPS Flashcards
Asset Manager Code (Definition)
- Outlines the thical and profissional responsibility of firms that manage assets on behalf of clients
Asset Manager Code (Goal)
- Set forth a useful framework for all asset managers to provide services in a fair and profissional manner and fully disclose key elements of those services to clients
Asset Manager Principles (List)
- Act in a professional and ethical manner at all times
- Act for the benefit of the client
- Act w/ independence and objectivity
- Act w/ skill, competence and diligence
- Communicate w/ clients in a timely & accurate manner
- Uphold the applicable rules governing capital markets
Asset Manager Principles (List - Resumida)
- Agir íntegro e é ético
- Benefício do Client (3A - Loyalty)
- Independência e Objetividade (1B)
- Skill, Competence and Diligence (5A - Diligence)
- Communicate w/ clients in a timely and accurate manner
Asset Manager Code: 1 - Loyalty to Clients
- Interest of clients > my own
- Preserve confidentiality
- Refuse business relations or gifts that can reasonably affect independence and objectivity
Asset Manager Code: 2 - Investment Process and Actions
- Reasonable care and judgment
- Not engage in market manipulation
- Deal fairly and objectively when communicating investment decisions
- Have reasonable and adequate basis to invest
- New Mandate: - follow mandate, give disclosure
Asset Manager Code: 3 - Trading
Managers must:
1. Not act or cause others to act on MNPI
2. Priority of Transactions
3. Use commissions for stuff that directly assist in investment management
4. Maximize portfolio value with best execution
5. Establish policies to ensure fair trade allocation
Asset Manager Code: 4 - Risk Mgmt
- Policies & Procedures
- Appoint Compliance Officer
- Ensure info given to client (fair, accurate, complete)
- Record Retention
- Qualified Human Capital
- Business plan for disruption
- Firmwide risk mgmt policy
Asset Manager Code: 5 - Performance and Valuation
- Fair, Accurate, Complete
- Use Fair Market Value Prices
Asset Manager Code: 6 - Disclosure
- Communicate timely, ongoing basis
- Ensure disclosures are truthful, accurate, complete
- Include Material Facts (conflicts, disciplinary actions
Asset Manager Code (List)
- Loyalty to Clients
- Investment Process
- Trading
- Risk Management and Compliance
- Performance and Valuation
- Disclosures
GIPS Standards (Definition)
Globally accepted standards for investment management firms in (1) calculating and (2) presenting investment returns to prospective clients and investors
GIPS ideals (List)
Fair Representation and Full Disclosure
Benefits of GIPS
(a) Returns: Objectively comparable
(b) Full Disclosure: Performance History is disclosed
Investment Management Firms
- Industry as a whole
- Reassure investors about veracity of performance results
- Non Compliance = Disadvantage
- Increases competition
GIPS (Scope)
Applies to investment management firms and asset owners that:
(1) Manage assets
(2) Discretionary basis and
(3) Compete for business
GIPS Objectives (List of 5)
- Promote investor interests and investor confidence
- Ensure accurate and consistent data
- Obtain worldwide acceptance of a single standard for calculating and presenting performance
- Pomote fair global competition among investment firms
- Promote industry self-regulation
GIPS Requirements
- Compliance must be firmwide
- All fee paying, discretionary segregate accounts must be assigned to at least one composite
GIPS Composite (Definition)
Aggregate of one or more portfolios that are designated to similar investment objective, mandates or strategy
Segregate Account (Definition)
Portfolio owned by a single client (SMA)
Limited Distribution Pooled Account (Definition)
Investment of Itaú only made available to Itaú clients
GIPS Objectives (List of 5 - Resumida)
- Investor Interest
- Accurate data
- Standard for Calculation of Performance
- Competition
- Self Regulation
GIPS Sections (List of 8)
- Fundamentals of Compliance
- Input Data and Calculations
- Composite and Pooled Fund Maintenance
- Composite and Time Weighted Return
- Composite and Money Weighted Return
- Pooled Fund and Time Weighted Return
- Pooled Fund Money Weighted Return
- GIPS Advertising Guidelines
GIPS 1. Fundamentals of Compliance
- Definition of Firm: Investment firm, subsidiary or division held out to clients as a distinct business entity (eg. Itaú Asset)
- Total Assets = Discretionary (+) Non Discretionary (+) Sub-Advisers
- Discretion
Time Weighted Returns (Describe)
- Ignore cashflows
- Mandated for portfolio and composite returns
- Geometric mean annualized
- Calculate 1x/month at least
- If there is an important cashflow, calculate subperiod return
GIPS 3. Composite & Pooled Fund Maintenance
- Asset Weight Average of All Portfolios included in it
GIPS Minimum Years Requirement (Describe)
- At least 5 or since inception
- Must report up to 10 years at least
Modified Dietz (Formula)
Rmd = [V1 - V0 - CF] / [Vo + (sum CFi*wi)]
Modified IRR (Formula)
Modified IRR = Sum [CFi(1+r)ˆwi] + V0(1+r)
Rules regarding return presentation
- Mandated: TWR
- Firm may choose MWR if
a) Has control over cashflows
b) Portfolios are closed-end, fixed life, fixed commitments or
c) illiquid investments
Other Rules (List of 3)
- Cash/Equivalents: Consider when calculating returns because it is an active decision to hold it
- Expenses & Fees: Returns are calculated after transaction fees (do not include custody fees, only bundled if transaction costs)
Valuation Requirements (Fair Value List)
- Quoted market prices, observable, unadjusted
- Quoted for similar
- Market based inputs observable
- Subjective, unobservable inputs
Composite Construction (Rules)
- All actual fee paying discretionary segregated accounts and pooled funds
Do NOT include non discretionary. Only if the was waived or if it refers to firm’s own capital.
Legacy Portfolio Treatment
- Sell
- If sale is not an option. It is discretionary.
Model Portfolio (Treatment)
Do NOT include in any composite
Terminated Portfolio (Treatment)
Must be included in the composite through the last full measurement period
M&A (Treatment)
Firm A can link performance to Firm B if
(a) Investment Decision is with Firm A
(b) Decision Making Process intacto c/ Firm A
c. Firm A has records supporting its decisions
d. No breaks in the track record
Verification Steps
- Policies / Procedures
- Sampling of Portfolios
- Test the Sample
- Review Portfolios
- Test Construction / Maintenance of Composites (Exclude, Include, Discretionary or Not)
Portability Criteria (List)
- Pessoa que veio “must be the primary decision maker for the strategy while at the prior job”
- Composite must not be in a berak in the track record
- Strategy will remain intact
Firm complies with GIPs since 2005 mas quer mudar disclosure para 2015-2019, dadas as melhorias nos sistemas de cálculo de performance. É permitido?
No. It violates the spirit of fair representation and full disclosure of performance. The firm may eleminate returns from > 10y ago, but must not suddenly reduce the presentation to 5 years.
Requirement: Disclosure of how many composites are in a composite
R: Must disclose unless 5 or less
Accounts (quais podem entrar no composite?)
- Actual, fee paying discretionary segregated accounts: ENTRAM
- Non-Paying Fee Discretionary: ATÉ PODE, desde que haja disclosure e tenha waiver de fee
- Non-Discretionary: Must NOT be included.
Removal of Portfolio:
Composite Minimum: USD 10 MM in assets. Portfolio has USD 10 mm but gets below this threshold. Should it be excluded?
Yes. If the firm sets a minimum asset level for portfolios to be included in a composite, the firm must not include portfolios
below the minimum asset level in that composite.”
However, the firm may set (1) one MINIMUM asset level at which to add a portfolio to a composite and (2) another level at which a portfolio must be REMOVED from a composite.
If this is not the case, when general threshold is achieved, it must REMOVE.
Termination: Portfolio discretion terminated em 15 April effectively. Should it include the composite until which date?
R: 30-March. Last full period to which the investment manager had full discretion.
Switch: Portfolio switched. Should the historical performance remain in the old composite or not?
R: Yes. Historical performance should not be switched. It must be included in the historical performance of the composite through the last full measurement period during which the firm had discretion.
