One of the more common questions we get asked by firms is whether they should use model or actual fees to calculate net-of-fee composite returns. With the soon-to-be-implemented SEC Marketing Rule requirements for net-of-fee composite performance calculations, many firms will need to reconsider their current calculation methodology to make the best decision going forward.
Now that it is a regulatory requirement, we are working with private equity/venture capital firms to review their IRR calculations and marketing decks to ensure they meet the requirements established in the FINRA 20-21 notice.
Looking for a little distraction to kick-start the spring? We are highlighting five top performance Q&A’s focused on pooled fund expenses.
1. Someone said that the expense ratio should be annualized. What is the source for this requirement?
Einstein said to make mistakes, because that’s how we learn and grow. And we all make them. That’s why the GIPS Standards include error correction requirements to provide transparency in reporting after a material error has been made. Below are our answers to error correction questions from attendees at this past year’s GIPS Conference.
With the finalization of 2020 performance, most marketing departments are completing their presentations. We have compiled pertinent questions from the GIPS Annual Conference to help compliant firms create marketing materials […]
As firms consider their GIPS Report Distribution policies we have compiled pertinent questions from the GIPS Annual Conference to help compliant firms distribute GIPS Reports and ensure disclosures are properly included.
It’s time for calendar year updates to assets under management. Three questions from the attendees at the GIPS conference are worth a little extra attention when updating your GIPS reports […]
Wondering what updates need to be made to you compliant presentations/GIPS Reports to meet the 2020 GIPS Standards? Check out this PDF which summarizes many of the updates.
GIPS Verification Basics Attendees at this fall’s Annual GIPS Standards Conference submitted questions about verification and CFA Institute notification. We’ve answered 5 of those questions below. Why would a GIPS-compliant […]
GIPS Reports – Managing Distribution Requirements Does your firm manage segregated accounts and pooled funds? Are you writing 2020 policies to provide a composite report with the fee schedule and […]
This is a comprehensive list of Q&A’s released as part of the GIPS standards Newsletter, organized by subject matter. As CFA Institute continues to add Q&As through the GIPS Standards Newsletter, we will continue to update this page.
It is hard to believe year-end reporting was completed just 3 months ago, and 2019 double-digit returns were something to be celebrated. It feels like the last 3 months have […]
With the 2020 edition of the GIPS standards, firms claiming compliance with the GIPS standards now have a choice of whether to use time-weighted returns (TWRs) or money-weighted returns (MWRs). […]
It’s that time of year for many firms to update annual performance statistics in compliant presentations and send them off to databases. For firms that want to jump right in […]
For firms electing to update reports with 2019 performance, the season for making required changes is upon us. What is really changing to the GIPS compliant presentation besides now referring […]
Key Concepts for Fund Managers Firms managing only commingled funds often question the relevance of creating GIPS-compliant composites for pooled funds that are essentially already of asset-weighted, strategy specific “composites.” The 2020 GIPS […]
First-Steps for Segregated Account Managers Firms managing segregated accounts who claim compliance with the GIPS standards – and firms who currently include pooled funds in composites, present TWRs, and expect to […]
First Quarter 2019 is almost half over. Now is a great time for an in-depth review and refresh of firm-wide GIPS standards policies and procedures, especially for firms on an annual verification cycle. Here’s a list of Do’s and Don’ts to help with those P&P reviews and final polishing of GIPS Composite Reports.
Beyond “Don’t Use” – How (Not) to Calculate Money-Weighted Returns in Excel
If cost was of no matter, then asset managers would all own (fill in the blank with your favorite accounting system). For emerging asset management firms, cost does matter. When managing a start-up commingled fund, an investment firm only needs to calculate a single return stream to comply with best practices in the GIPS® standards. It’s hard to justify a six-figure expense when Microsoft Excel is free, never mind the pitfalls.
In the 2020 GIPS Exposure Draft, provision 3.A.10 is a revision of 3.A.7 that incorporates the term “client-directed” from the GIPS handbook. It prohibits composite membership changes unless there is a composite redefinition or a documented “client-directed” change to a portfolio’s investment mandate, objective, or strategy.
This provision ensures an asset manager’s decisions are reflected in the composite’s performance, providing accountability for tactical decisions or style drift over time.
The roll-out of 2020 GIPS® is underway and currently open for comment. One of the more confusing provisions in the exposure draft is the proposed requirement to report Advisory Only Assets separate from GIPS Firm assets.
This 2020 GIPS provision is not a big departure from prior guidance. It is important, however, to understand if you and your colleagues—and regulators—use the term “advisory only” assets differently than it is used in the 2020 GIPS Glossary. This article will define the terminology and help you assess the impact of the new terminology for your firm, if any. We’ll also line up the GIPS terminology with regulatory assets under management and provide clarifying examples.
I’ve been helping firms become GIPS compliant and have been running marathons for over 20 years, and last month, I just ran my fastest half marathon ever. The marathon was an inaugural Mt. Hood Revel run, and my husband was getting texts during the event tracking my bib number:
“One quarter done with a pace of 8:05 min/mile. Projected finish time of 3:33:26.41 at 9:05AM.”
Step 1 – Gain Management Support: Management must commit time and resources to bring the firm into compliance. Create a GIPS committee that includes leaders from different departments at the firm.
Step 2 – Know the Standards: There is no way you’re going to get your whole firm to read the 400+ page GIPS Handbook or sit through a day-long work shop.
The primary objectives of the Global Investment Performance Standards (GIPS) are full disclosure and fair representation in marketing presentations. The benefits of GIPS compliance go beyond the compliant presentation, though. Claiming compliance with the GIPS standards shows a firm is committed to ethical best practices and that the firm employs strong internal control processes.