Pooled Fund Net Returns & Expense Ratios

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?

In the Explanation of the Provisions for Section 6, 6.A.5 it states that “Pooled fund expense ratios that are calculated for periods of less than one year must be annualized.” The expense ratio may also be shown in an exhibit if the exhibit is provided along with the GIPS Report.  Important consideration: During the first year of a fund’s life, expenses are often capped.  An annualized partial-year expense ratio would not ever be larger than the fund’s stated maximum annual expense ratio.

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GIPS® Error Correction Basics

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.

What constitutes a material error versus a non-material error?

This is a common question, and the answer is dependent on the firm. Each firm has the ability to define materiality as they wish. The most important question that the firm needs to ask themselves is: would this error affect a prospects decision on investing with us or not? Most firms have three levels of materiality explicitly defined in their GIPS Policy Manual.

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2020 GIPS® Standards Q&As

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.

GIPS 2010 Transition to GIPS 2020

Pooled Funds

Composite Management/Policies

Input Data and Portfolio Calculation

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Money-Weighted Returns in Excel

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). Read more