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Year-end Database Questions

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 and incorporate 2020 GIPS standards requirements into GIPS reports, 2020 Handbook guidance is imminent. Below are three year-end database questions you’ll want to get right:    

  1. What assets do we include in firm assets as of 12/31/XX?  What about composite assets as of year-end?  What about an account that opened on 12/17/XX, and is being included in the composite as of 12/31/XX.  Do we include this account in our composite assets?

For firm assets as of 12/31, the firm needs to include all discretionary and non-discretionary accounts (per the GIPS Standards and firm definition) in the total firm assets as of year-end.  Accounts that opened during the month of the December, but are not yet included in a composite, would still be included in firm assets, since the account had funded by 12/31. 

For composite assets, this can be ambiguous.  Composite assets only include assets from the accounts that have contributed to the composite performance.  If the account is not included in the composite for the entire month, then the account is not included in the composite assets as of month end or year-end.  Firms can’t necessarily rely on accounting system composite asset reports as of 12/31 to treat new accounts correctly, though. Some portfolio accounting systems require a new account opened on 12/17 to be added as of 12/31 in order to be included in January performance.

  1. Is a database considered a third party prospective client, even if we self-populate? Meaning do we need to provide our GIPS Reports to them every 12 months.  Do we have to submit our verification and performance examination reports to databases? 

Although a database is not a prospective client itself, firms are no doubt populating them so that prospective clients can look at the data available.  The GIPS standards have incorporated “investment consultants and other third parties” into the definition of a prospective client, and a 2013 CFA Institute Q&A specifically notes that “databases” are prospective clients. 

Firms do not have to submit verification/performance examination reports to any prospective client unless requested. However, firms do need to provide all prospective clients—including self-populated databases—with GIPS Reports at least annually.  If space to upload documents in addition to the GIPS reports is available, providing databases with verification and performance examination reports will only help a firm and should be done. 

If there is not a field to provide required information, then we recommend sending it to the database administrator or one of your firm’s contacts at the organization sponsoring the database. Be sure to document the annual delivery to demonstrate that you have met this requirement.  Is January the best time? Even if you are quick to update your annual statistics in your GIPS reports, waiting a month or two or until verification is complete to mass distribute to databases and other prospective clients could save you a lot of republishing communications if there’s an inadvertent material error.

  • If our firm is verified, and the question from the database is, “Has the performance been reviewed?” Can our firm answer “yes” to this question?

The answer to this question is, “it depends.”  If the firm receives a verification only then you would have to answer “no” to this question.  However, if the composite performance being uploaded has received a performance examination, then you could answer “yes” to the question has the performance “been reviewed,” “been audited,” “been examined” or even “has the performance been verified.”  Databases rarely get the terminology precise, but it’s important you don’t overstate the scope of third party’s review of your firm’s claim of compliance. 

Performance exams are specifically focused testing of the data on a GIPS Composite or Pooled Fund Report that provides additional assurance regarding the performance, required statistics and disclosures. Performance exams are not required nor recommended by the GIPS standards. The firm must be verified for the period covered by the performance exam.

Often, firms choose to have a performance examination on their most marketed strategies. This can give further integrity to the performance and will lower the chance of a material error slipping through the cracks. All of the items on the corresponding GIPS Report will be tested in some way.

Have a question as your firm is updating databases with 2019 data?  Send them our way. Cascade Compliance has over 34 years of combined experience working with the GIPS standards, and its employees have worked with hundreds of firms in the U.S. and abroad.  One of the best parts of working with clients is getting to share expertise and knowledge of best practices across the industry.  Whether you are a client of ours or not, we are here to help you get better at what you do and answer any questions you may have. 

GIPS® Composite Reports – What’s Really Changing?

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 to them as GIPS Reports? 

Most significantly, there are now four compliant presentations, and each report has its own chapter in the 2020 edition of the GIPS standards.  For firms already including limited pooled funds in composites, you can weigh the pros and cons of pooled fund versus Composite Reports in our article “Bridging the Fund  vs Composite Divide” .

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2020 GIPS® Standards – Bridging the Fund vs. Composite Divide

Key Conceptfor 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 standards added options that make GIPS compliance much more meaningful for managers of pooled funds, especially for firms with dozens of mutual funds and alternative investment strategies delivered in commingled fund vehicles.

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A 2020 GIPS Standards Game-Plan

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 continue doing that: this article is for you

Since the major rewrite of the GIPS standards was first announced, the focus has been on updates to make the GIPS standards more relevant to different types of discretionary asset managers.  For firms already claiming compliance, especially managers of segregated accounts, changes were expected to be minor… and they are.

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GIPS® Standards Do’s & Don’ts

GIPS® Standards Do’s and Don’ts

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.

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