32a GIPS: Scope, objectives and key characteristics

Discuss the objectives, key characteristics, and scope of the GIPS standards and their benefits to
prospective clients and investment managers

What are the objectives of GIPS?

Globally-recognized industry standard for performance reporting

Promote accurate and consistent performance data

Promote competition by lowering barriers to entry

Foster industry self-regulation

What is the scope of GIPS?

GLOBAL

Firms from any country are invited to comply with GIPS

What are the key characteristics of GIPS?

Voluntary global ethical standards for firms (NOT individuals)

Firm-wide compliance only (NO partial compliance)

Fair Representation of investment performance

Full Disclosure (no cherry-picking)

Integrity of Input Data is paramount

Intended to cover all asset classes

Composites must include ALL fee-paying, discretionary portfolios

Ever-evolving (used to cover just returns, now covering risk)

32b GIPS: (S0) Fundamentals of Compliance

Explain the fundamentals of compliance with the GIPS standards, including the definition of the firm and
the firms definition of discretion

Fundamentals of compliance: Basic Stuff

Firms must compliy with ALL of the requirements imposed by the GIPS Standards

Firms must obey all relevant laws and regulations

Firms must not present false or misleading performance

Fundamentals of compliance: Firm-wide compliance only

Firms must apply GIPS on a firm-wide basis

Firms must document their policies and procedures for GIPS compliance

Firms must not suggest they are GIPS-compliant if they aren't

Firms must not suggest a specific return calculation process is GIPS-compliant

Firms must not suggest that that a specific portfolio is calculated in a GIPS-compliant manner

Fundamentals of compliance: Clients and prospective clients

Firms must produce GIPS-compliant presentations to clients (every 12 months) and prospective
clients (on demand)

Firms must produce Composite descriptions to prospective clients

Firms must produce a GIPS-compliant presentation of any composite requested by a prospective

client

Fundamentals of compliance: Defining the "Firm"

A boutique investment firm that operates as a stand-alone unit is pretty obviously a firm. For larger
institutions with multiple divisions and subsidiaries, a "firm":

Represents itself to clients and potential clients as a distinct business unit

Relies on its own personnel, administration and resources

Serves a distinct market segment or client type

Uses a distinct investment process

Managers can exercise discretion over investment decisions

A firm's total assets are aggregate FAIR value of all discretionary and non-discretionary portfolios

Assets farmed out to sub-advisors must be counted if the firm has discretion over choosing the
sub-advisor

A change in a firm's ownership or structure does not wipe out historical performance data

Fundamentals of compliance: Defining "discretionary"

A manager must have sufficient freedom to carry out his or her chosen strategy or style.

A portfolio is not "discretionary" if:

The client has veto power over trades
The client makes frequent large cash withdrawals
The manager cannot change allocations or risk exposure
The client relationship is "advisory-only"

32c GIPS: (S1) Input data

Explain the requirements and recommendations of the GIPS standards with respect to input data,
including accounting policies related to valuation and performance measurement
GIPS REQUIREMENTS: Input data

Standard Key Wording

Comments

1A1

Store and maintain all data needed to

support performance presentation

- Keep all records

- Digital format is fine
- Special case for a force majeure event

1A2

2011 on: FAIR VALUE reporting using GIPS - At-cost or book value is not permitted
principles required

1A3

Composite-specific valuations are required - Pre-2010: Value portfolios at least monthly

- 2010 on: Value portfolios at least monthly + any
large external CFs

1A4

2010 on: Value portfolios on last business

day each month

- Last Friday of the month is NOT allowed

1A5

2005 on: Trade-date accounting required

- NOT settlement date

1A6

Market valuations must include accrued

income

- This applies even to cash parked in short-term

money markets
- The impact of bonds that default must be
recognized when default occurs

1A7

2006 on: Composites must have consistent - Ending valuation must be on the last business
end-year and beginning of year valuations day of the year unless the composite is reported
on a non-calendar fiscal year

32d GIPS: (S2) Return calculations

Discuss the requirements of the GIPS standards with respect to return calculation methodologies,
including the treatment of external cash flows, cash and cash equivalents, and expenses and fees
GIPS calculation methodology requirements
Standard Key Wording

Comments

2A1

Total return is required

2A2

Time-weighted return adjusted for external - 2005 - 2010: Approximate returns adjusted for
CFs is required (see 31c)
daily-weighted external CFs
- 2010 on: value portfolios on the day of any large

external CFs (see 32c)

- See return calculation methodologies below
2A3

Total return must include returns from cash

and equivalents

2A4

Returns must reflect actual trading costs

incurred

2A5

Treatment of direct trading costs if bundled - Gross-of-fees: returns reduced by entire bundled
fee or the portion that includes direct trading costs
- Net-of-fees: returns reduced by the entire bundled
fee or the portion that includes direct trading costs
and investment management fee

Estimates of trading costs are NOT permitted

It is recommended that firms report returns "gross

of fees", which means that only trading costs have
been deducted, but they can report returns net of
fees (ie. management/performance fees have been
deducted as well) if the would prefer.
If a firm does report on a net of fees basis, it must
disclose if any additional fees have been deducted.
Measures for 2A2
Measure

Formula

Comments

Deitz (original)

Only allowed until 2005

Deitz (modified)

TWRR methodologies that adjust for daily CFs

Required from 2005 to 2010

Modified IRR

Aslo called Modifed Bankers' Administration Institute

method

TWRR (using
revaluation at
the time of
external CFs)

- Required from 2010 on

- Provides true TWRR, not an estimate

Geometricallylinked Total
return

RTR = [(1 + R1)(1 + R2)...(1 Subperiod returns are linked to calculate a total return over
+ Rn)] 1
multiple periods

Recommendations
Standard Key Wording
2B1

Comments

Returns should reflect non-reclaimable

withholding taxes and reclaimable
withholding taxes should be accrued

32e GIPS: (S2) Asset-weighted portfolio returns

Explain the requirements and recommendations of the GIPS standards with respect to composite return
calculations, including methods for asset-weighting portfolio returns

Requirements
Standard Key Wording
2A6

Composite returns must be weighted

individual portfolio returns

2A7

2006 to 2010: Asset-weighted returns must

be calculated quarterly
2010 on: Asset-weighted returns must be
calculated monthly

Comments
Valuations can be beginning of period value, but
adjustments for cash flows are permitted.

Recommendations
Standard Key Wording
2B2

Comments

For periods before 2010, firms should calculate

asset-weighted composite returns at least monthly
(but this is not required)

32f GIPS: (S3) "Discretionary" composites

Explain the meaning of discretionary in the context of composite construction and, given a description of
the relevant facts, determine whether a portfolio is likely to be considered discretionary
Requirements
Standard Key Wording

Comments

3A1

- "Discretion is the ability of the firm to implement

its intended strategy"
- BUT, not all client-specified restrictions make a
portfolio non-discretionary
- If these restrictions are minimal, such as no
derivatives, it is still discretionary
- If these restrictions are significant, such as a
huge cash requirement or very tight tracking limits,
the portfolio is no longer discretionary

- All fee-paying discretionary portfolios must

be in at least 1 composite
- Non-fee-paying portfolios can be included
(if appropriately disclosed)
- Non-discretionary portfolios must NOT be
included

32g GIPS: (S3) Composite construction

Explain the role of investment mandates, objectives, or strategies in the construction of composites
Standard Key Wording
3A4

Comments

Composites must be defined according to

similar investment strategies and include all
portfolios that meet this composite definition

32h GIPS: (S3) Composite construction

Explain the requirements and recommendations of the GIPS standards with respect to composite
construction, including:
- switching portfolios among composites,
- the timing of the inclusion of new portfolios in composites, and
- the timing of the exclusion of terminated portfolios from composites

Standard Key Wording

Comments

3A2

Only assets actually managed by the You can't use modeled or simulated assets don't count
firm can go in a composite

3A3

Simulated results can't be presented Does this require further explanation?

as actual results

3A5

New portfolios need to be included in There is some leeway if a strategy cannot be

a composite in a timely manner
immediately implemented or if a portfolio funded
increments can adequately meet a strategy before it is
fully funded

3A6

Historical reporting must include

- Data is included up to the last full month (or period) that
portfolios that have been terminated the portfolio was managed
- A portfolio is not considered terminated if it only
changes legal status

3A7

Portfolios can't be switch to another

composite without a good reason

3A9

A portfolio can't be in a composite if it Portfolios can't be retroactively included in a composite

is below the minimum asset level
after a threshold change

3A10

A portfolio can removed from a

composite due to "significant" CFs

If a portfolio does get moved, its historical performance

stays with its old composite

BUT, "significant" must be defined in advance

Recommendation 3B2: Firms should use temporary
new accounts to remove the effect of significant CFs

Notes:
Timeframe for including new portfolios in a composite
Firms can set their own policies for the timely inclusion of new portfolios into a composite.
These policies can account for matters such as the time required for a manager to implement the desired
strategy.

BUT, once a policy is set, it must be applied consistently.

Guidance on moving portfolios out of a composite

There must be a valid reason for moving a portfolio out of a composite.
A common justification is "documented changes in the client's investment mandate..."

For example, the client retires and moves from a capital accumulation strategy to a capital
preservation strategy.

BUT, when a portfolio moves to a new composite, its historical data stays with the old composite.
32i GIPS: (S3) Carve-outs from multi-class portfolios
Explain the requirements of the GIPS standards for asset class segments carved out of multiclass portfolios

Standard Key Wording

3A8

Post 2010, Carve outs can't be in a

composite unless they are actually

Comments

separately-managed with its own cash

balance

32j GIPS: (S4) Disclosures

Explain the requirements and recommendations of the GIPS standards with respect to disclosure,
including:
- fees,
- the use of leverage and derivatives,
- conformity with laws and regulations that conflict with the GIPS standards, and
- noncompliant performance periods
Disclose...
Standard Key Wording

Comments

4A1

If a firm has met GIPS requirements, there

are three possible statements that can be
used to describe GIPS compliance

1) Not verified, 2) Verified, 3) Verified and

performance examination

4A2

Meaning of "firm" used for assets and

compliance purposes

4A3

Composite benchmark

4A4

Benchmark description

4A5

If gross-of-fees, any other fees deducted

4A6

If net-of-fees, any other fees deducted and if

net of performance fees

4A7

Currency used to express performance

4A8

Measure of internal dispersion used

4A9

Fee schedule

4A10

Composite creation date

4A11

Composite description is available upon

request

4A12

Valuation and performance calculation

policies are available upon request

4A13

Presence, use and extent of leverage,

derivatives & short positions

4A14

Significant events

4A15

Any periods that do not comply with GIPS

4A16

Any redefinition of the "firm" and why

4A17

Any redefinition of a "composite" and why

4A18

Any changes to a composite's name

4A19

Minimum asset level and any changes to it

4A20

Relevant details on withholding taxes for

portfolios and benchmark

4A21

Any differences between composite and

benchmark exchange rates

Firms must disclose when significant personnel

leave.

4A22

Any conflict between a local law and GIPS

4A23

Any carve-out data in a composite from pre

2010

4A24

Types of fees included in a bundle (if

applicable)

4A25

If a sub-advisor was used and when

4A26

If any portfolios were not valued at the end

of a month (pre-2010)

4A27

The use of "subjective unobservable" inputs

for valuation (from 2011)

4A28

If valuation hierarchy materially differs from

GIPS recommendation

4A29

Why no benchmark is presented (if

applicable)

Claiming that clients don't care about benchmarks

is NOT a good enough reason to not adopt one.

4A30

Date, description and reason for any

changes in the benchmark

A firm must disclose the date and reasons for

change if it adopts a new benchmark for
a composite. A firm is allowed to retroactively
change its benchmark, but are "encouraged" to
use the old benchmark a a comparison for prior
period performance.

4A31

Components, weight and rebalancing

policies of a custom benchmark

4A32

Definition of "significant" cash flow (if

applicable)

4A33

If 3-year Standard Deviation is not presented

due to lack of monthly data

4A34

Why 3-year SD is not relevant and what risk

measure was used (if applicable)

4A35

Performance of a past firm is linked to

present performance

32j GIPS: (S4) Disclosures

Explain the requirements and recommendations of the GIPS standards with respect to disclosure,
including:
- fees,
- the use of leverage and derivatives,
- conformity with laws and regulations that conflict with the GIPS standards, and
- noncompliant performance periods
Disclose...
Standard Key Wording

Comments

4A1

If a firm has met GIPS requirements, there

are three possible statements that can be
used to describe GIPS compliance

1) Not verified, 2) Verified, 3) Verified and

performance examination

4A2

Meaning of "firm" used for assets and

compliance purposes

4A3

Composite benchmark

4A4

Benchmark description

4A5

If gross-of-fees, any other fees deducted

4A6

If net-of-fees, any other fees deducted and if

net of performance fees

4A7

Currency used to express performance

4A8

Measure of internal dispersion used

4A9

Fee schedule

4A10

Composite creation date

4A11

Composite description is available upon

request

4A12

Valuation and performance calculation

policies are available upon request

4A13

Presence, use and extent of leverage,

derivatives & short positions

4A14

Significant events

4A15

Any periods that do not comply with GIPS

4A16

Any redefinition of the "firm" and why

4A17

Any redefinition of a "composite" and why

4A18

Any changes to a composite's name

4A19

Minimum asset level and any changes to it

4A20

Relevant details on withholding taxes for

portfolios and benchmark

4A21

Any differences between composite and

benchmark exchange rates

4A22

Any conflict between a local law and GIPS

4A23

Any carve-out data in a composite from pre

2010

4A24

Types of fees included in a bundle (if

applicable)

4A25

If a sub-advisor was used and when

4A26

If any portfolios were not valued at the end

of a month (pre-2010)

4A27

The use of "subjective unobservable" inputs

for valuation (from 2011)

4A28

If valuation hierarchy materially differs from

GIPS recommendation

4A29

Why no benchmark is presented (if

applicable)

Claiming that clients don't care about benchmarks

is NOT a good enough reason to not adopt one.

4A30

Date, description and reason for any

changes in the benchmark

A firm must disclose the date and reasons for

change if it adopts a new benchmark for
a composite. A firm is allowed to retroactively
change its benchmark, but are "encouraged" to
use the old benchmark a a comparison for prior
period performance.

Firms must disclose when significant personnel

leave.

4A31

Components, weight and rebalancing

policies of a custom benchmark

4A32

Definition of "significant" cash flow (if

applicable)

4A33

If 3-year Standard Deviation is not presented

due to lack of monthly data

4A34

Why 3-year SD is not relevant and what risk

measure was used (if applicable)

4A35

Performance of a past firm is linked to

present performance

32l GIPS: (S5) Firm acquisition and historical performance

Explain the conditions under which the performance of a past firm or affiliation must be linked to or used
to represent the historical performance of a new or acquiring firm

Standard 5A8
Performance track records of a past firm or affiliation must be linked to or used to represent the historical
record of the new or acquiring firm on a composite-specific basis if:

Substantially all the investment decision-makers are employed by the new firm (e.g., research
department, PMs, and other relevant staff).

The decision-making process remains substantially intact and independent within the new firm.

The new firm has records that document and support the reported performance.

If a firm acquires another firm or affiliation, the firm has one year to bring any noncompliant
assets into compliance.

32m GIPS: (S5) Return dispersion measurements

Evaluate the relative merits of
- high/low, range,
- interquartile range, and - equal-weighted or asset-weighted standard deviation
as measures of the internal dispersion of portfolio returns within a composite for annual periods
Standard 5B3 For periods prior to January 1, 2011, the 3-year annualized ex post standard
deviation of monthly returns for each year for the composite and its benchmark.
Standard 5B4 For each year in which an annualized ex post standard deviation is present for the
composite and the benchmark, corresponding annualized return should be presented.
Standard 5B5 For each year that annualized composite and benchmark returns are reported, the
corresponding annualized standard deviation of monthly returns for the composite and
benchmark.
Standard 5B6 Additional ex post composite risk measures.

32n GIPS: (S6) Real Estate

Identify the types of investments that are subject to the GIPS standards for real estate and private equity

Real Estate: What it is and what it is not (for GIPS)

What IS considered Real Estate for GIPS-purposes?

Direct holdings in property (wholly-owned or partially-owned)

Comingled Real Estate funds, separate accounts, and unit trusts

Private placement (unlisted) securities issued by REITs or REOCs

Any private interest in a property where at least some portion of the investor's return is linked to
the performance of the underlying assets (eg. Equity-oriented debt, such as participating in
mortgage loans)

Real Estate closed-end Private Equity funds (see discussion of Private Equity reporting
requirements)

What is NOT considered Real Estate for GIPS-purposes?

Publicly traded real estate securities, including public securities issued by REITs and REOCs

Mortgage-backed securities (Residential or Commercial)

Any private investment in property where the investor's return is entirely related to interest rates
and completely detached from the performance of the underlying asset.

Note: If a portfolio has a mix of Real Estate and non-Real Estate assets, look the GIPS Standard 3A8 on
carve-outs (see 32i)
Requirements: Input Data
Standard Key Wording

Comments

6A1

2011 on: RE assets must be valued at FAIR GIPS Valuation principles are required (see 32p)
VALUE

6A2

2008 on: RE assets must be valued at least

quarterly

6A3

2010 on: RE portfolios must be valued at

quarter end

6A4a

Pre-2012: External valuation at least every

36 months

6A4b

2012 on: External valuation at least every 12 Less frequent if there is a client agreement, but

Or on the last business day of the quarter

months
6A5

never less frequent than 36 months

A qualified professional appraiser must

perform external valuations

Requirements: Calculation Methodology

Standard Key Wording

Comments

6A6

Portfolio returns must be calculated at least

quarterly

6A7

Returns must be calculated net of actual

transaction costs incurred

6A8

2011 on: Returns from income and capital

be calculated separately

Geometrically-linked TWRR must be used

6A9

Composite TWRR must be calculated at

least quarterly

Individual portfolio returns must be asset-weighted

Formulas for 6A9

Income
Return (IR)

Capital Return
(CR)

Total Return
(TR)

TR = IR + CR

Requirements: Disclosure
Standard Key Wording
GIPS-compliant reporting requires to
following disclosures:
6A10a

Firm's description of "discretion"

6A10b

Internal valuation methodologies used for the

most recent period

6A10c

2011 on: material changes to valuation

policies and /or methodologies

Comments

6A10d

2011 on: Material differences between

external and reported valuations

And the reasons why

6A10e

Frequency that RE is valued by an external

professional appraiser

6A10f

If component returns are calculated

separately using geometric TWRR

6A10g

If component returns from pre-2011 have

been adjusted so TR = IR + CR

6A11

Any reported performance from pre-2006 that

is not GIPS-compliant

6A12

Gross-of-fees returns must disclose any

additional deductions

Above transaction costs

6A13

Net-of-fees returns must disclose any

additional deductions

Above transaction costs and investment

management fees

Requirements: Presentation and Reporting

Standard Key Wording

Comments

6A14

Composite returns must be reported and

gross/net-of-fees specified

In addition to Total Returns

6A15

Non-GIPS-compliant returns from 2006 on

cannot be reported

Non-GIPS-compliant returns can be reported only

if they are from pre-2006

GIPS-compliant presentations must include:

6A16a

High/Low TWRR for individual portfolios (if

composite had 5+ portfolios)

6A16b

% of asset valued externally during the year

No measure of internal dispersion is required if

composite has <5 portfolios

Additional Requirements for Closed-End Real Estate Funds: Calculation methodology

Standard Key Wording
6A17

Annualized SI-IRR must be caluculated

6A18

SI-IRR must use at least quarterly CFs (or

more frequent)

Comments

Additional Requirements for Closed-End Real Estate Funds: Calculation methodology

Standard Key Wording

Comments

6A19

Composite definition must remain consistent

Composite must specify vintage year and

mandate, objectives or strategy

Additional Requirements for Closed-End Real Estate Funds: Calculation methodology

Standard Key Wording
6A20

Final liquidation date must be disclosed for

all liquidated composites

6A21

Frequency of CFs used to calculate SI-IRR

must be disclosed

6A22

Composite Vintage year (and how it was

determined) must be disclosed

Comments

Additional Requirements for Closed-End Real Estate Funds: Calculation methodology

Standard Key Wording

Comments

GIPS-compliant presentations must include:

6A23a

SI-IRR must be presented for 5+ years or since

firm/composite inception

6A23b

2011 on: Non-annualized net-of-fees SI-IRR

required if intial period <1yr

6A23c

2011 on: Net-of-fees SI-IRR up to Composite final

liquidation date

6A24

If Gross-of-fees SI-IRR is presented, Net-of-fees SIIRR must be presented

At the end of each annual period, firms must
present:

6A25a

Composite since inception paid-in-capital

6A25b

Composite since inception distributions

6A25c

Composite cumulative committed capital

6A25d

Total value to SI paid-in-capital

Investment multiple

6A25e

SI distributions to SI paid-in-capital

Realization multiple

6A25f

SI paid-in-capital to cumulative committed capital

PIC multiple

6A25g

Residual value to SI paid-in-capital

Unrealized multiple

Benchmark used for calculating annual SI-IRR

must:
6A26a

Reflect the mandate, objective, or strategy of the

composite

6A26b

Be presented for the same time period as the

composite

6A26c

Be of the same vintage year as the composite

32o GIPS: (S7) Private Equity

Explain the provisions of the GIPS standards for real estate and private equity

Private Equity: What it is and what it is not (for GIPS)

What IS considered Private Equity for GIPS-purposes?
"Fixed-life, fixed-commitment private equity investment vehicles, including primary funds and funds-of
funds)

Investments in NON-PUBLIC companies at various stages of development

Investment in Public companies IF the intention is to take them private or is a Private Investment
in Public Equity (PIPE)

Includes the following investment structures/classes:

Venture Capital
Buyout Funds
Mezzanine Debt
Distressed Debt (some, not all)

What is NOT considered Private Equity for GIPS-purposes?

Real Estate closed-end funds are covered by Section 6 (see 43o)

Private equity open-end funds

Private equity evergreen fund

The one possible exception to this rule is for FoFs that appear evergreen, but have PElike terms such as:
Open-ended structure, but neither publicly-traded nor available to the general public
There are others, but just assume that evergreen funds are covered by Sections 0 - 5

Requirements: Input Data

Standard Key Wording
7A1

2011 on: PE investments must be valued at

FAIR VALUE

7A2

PE Investments must be valued at least

ANNUALLY

Comments

Requirements: Calculation Methodology

Standard Key Wording
7A3

Since Inception IRR (SI-IRR) is required

7A4

2011 on: SI-IRR must be calculated using

daily CFs

Comments

Distributions must be valued at the time they are

made

7A5

Returns must be net of actual Transaction

Costs incurred in the period

7A6

Net-of-fees returns must be net of

Investment Management fees

This includes carried interest

7A7

FoF returns must be net of all underlying

partnership fees

This includes carried interest

Requirements: Composite construction

Standard Key Wording

Comments

7A8

Composition definitions must remain

consistent

7A9

All Primary funds must be included in at

least one composite

Defined by vintage year, investment mandate,

objective, or strategy

7A10

All FoFs must be included in at least one

composite

Defined by vintage year, investment mandate,

objective, or strategy

Requirements: Disclosure
Standard Key Wording

Comments

7A11

If Vintage year is defined, it must be disclosed

7A12

Final Liquidation Date must be disclosed

7A13

Valuation methodology used for most recent

period must be disclosed

7A14

2011 on: Material changes to valuation

methodology must be disclosed

7A15

Any industry valuation guidelines other than

GIPS must be if disclosed

7A16

Benchmark calculation methodology must be

disclosed

If a public market equivalent is used, disclose

the base market index used

7A17

Frequency of CFs used to calculate SI-IRR

must be disclosed

Assumed to be daily, but could have been

monthly pre-2011

7A18

Gross-of-fees returns must disclose any

Above trading costs

additional deductions
7A19

Net-of-fees returns must disclose any

additional deductions

7A20

Any non-GIPS-compliant returns used (from

pre-2006) must be disclosed

Above trading costs and Investment

Management Fees

Requirements: Presentation and Reporting

Standard Key Wording

Comments

7A21a

MInimum 5yrs or reporting SI-IRR for

Composites (if possible)

Net-of-fees and Gross-of-fees

7A21b

2011 on: Non-annualized SI-IRR if composite

is less than 1-yr old

7A21c

2011 on: SI-IRR must be reported up to Final Net-of-fees and Gross-of-fees

Liquidation Date

7A22

2011 on: FoF composites must be reported

Gross of FoF fees

7A21

Annual End-of-Period reporting requirements

7A23a

Composite since Inception paid-in-capital

7A23b

Composite since Inception distributions

7A23c

Composite cumulative committed capital

7A23d

Total Value to since-inception paid-in capital

7A23e

Since inception distributions to paid-in capital Realization multiple

7A23f

Since inception paid-in-capital to cumulative

committed capital

PIC multiple

7A23g

Residual value to since inception paid-in

capital

Unrealized multiple or RVPI

7A24

Benchmark SI-IRR reported at end period

must:

7A24a

Reflect investment mandate, objective, or

Investment multiple

strategy of the composite

7A24b

Be presented for the same time periods as

the composite

7A24c

Be of the same vintage year as the

composite

7A25

Benchmark for FoF composite must be of the If the composite is only defined as an investment
same vintage year
mandate, objective, or strategy

7A26

2011 on: % of FoF composite assets in Direct

investments required

7A27

2011 on: % of FoF composite assets in fund

investment vehicles required

7A28

Reporting of non-GIPS-compliant returns from Reporting of non-GIPS compliant returns from

2006 on is NOT allowed
pre-2006 is allowed

Note: LOS wording has been changed for 2014

Original LOS wording:

Explain the provisions of the GIPS standards for real estate and private equity (see also
32n)

32p GIPS: (S8) Separately Managed Accounts

Explain the provisions of the GIPS standards for Wrap fee/Separately Managed Accounts
Standard Key Wording
8A1

Wrap fee/SMA composites must be created in

accordance with firm composite guidelines

8A2

Firms must disclose their actual experience

managing wrap fee/SMA portfolios

8A3

Non-GIPS-compliant results can only be reported

if pre-2006

8A5

All warp fee/SMA accounts managed to a stated

strategy must be reported together

8A5

Wrap fee/SMA accounts must be reported net of

the entire wrap fee

8A6

Pre-2006 non-GIPS-compliant returns can only

be linked if results from 2006 on comply

Comments

Each period that an SMA was not in a

composite must be disclosed

32q GIPS: (II) Valuation Principles

Explain the requirements and recommended valuation hierarchy of the GIPS Valuation Principles
Fair value:

The amount at which an investment could be exchanged in a current arm's length transaction
between willing parties in which the parties each act knowledgeably and prudently.

The valuation must be determined using the objective, observable, unadjusted quoted market
price for an identical investment in an active market on the measurement date, if available.

In the absence of an objective, observable unadjusted quoted market price for an identical
investment in an active market on the measurement date, the valuation must represent the firm's
best estimate of the market value.

Fair value must include accrued income.

Fair Value Requirements

Standard Provision
1

1A2

See above

0A2

4A22

0A5

4A12

4A27

4A28

Additional Fair Value Requirements for Real Estate

Standard Provision
9

6A4

10

External valuation process must adhere to local government laws and regulations and
disclose of there is a conflict

11

Appraiser's fee cannot be contingent on appraised value

12

6A5

13

6A10b

14

6A10c

15

6A10d

16

6A16b

Additional Fair Value Requirements for Private Equity

Standard Provision
17

Valuation methodology must be the most appropriate based on

nature of investment

18

7A13

19

7A14

20

7A15

32r GIPS: (III) Advertising Guidelines

Determine whether advertisements comply with the GIPS Advertising Guidelines
The following items must be included in any advertisement claiming compliance with GIPS Advertising
Guidelines:
1. Definition of the firm
2. How a prospective client can obtain a GIPS-compliant presentation and composite descriptions
3. Relevant GIPS compliance statement
4. Composite description
5. Composite total returns
6. Gross-of-fees or Net-of-fees
7. Total return for benchmark
8. Benchmark description
9. If no benchmark, explain why
10. Currency used to express performance
11. Presence, use and extent of leverage, derivatives and short positions
12. Whether any pre-2000 non-GIPS-compliant data was used
13. Any conflict between GIPS Advertising Guidelines and local laws or regulations
32s GIPS: (IV) Verification Prinicples
Discuss the purpose, scope, and process of verification
Pre-Verification Procedures
Knowledge of the GIPS Standards
Knowledge of Regulations

Knowledge of the Firm

Knowledge of the Firm's Policies and Procedures

Knowledge of the Valuation Basis and Performance Calculations

Valuation Procedures: Fundamentals of Compliance

The firm is, and has been, appropriately defined
The firm has defined and maintained composites in compliance with the GIPS standards

All the firm's actual, fee-paying, discretionary portfolios are included in at least one composite

The firm's definition of discretion has been consistently applied over time

At all times, all portfolios are included in their respective composites an no portfolios that belong
in a particular composite have been excluded

The firm's policies and procedures for ensuring the existence and ownership of client assets are
appropriate and have been consistently applied

The composite benchmark reflect the investment mandate, objectives, or strategy of the
composite

The firm's policies and procedures for creating and maintaining composites have been
consistently applied

The firm's list of composite descriptions is complete

Total firm assets are appropriately calculated and disclosed

Valuation Procedures: Determination of Discretionary Status of Portfolios

Verifiers must obtain a list of all portfolios
Verifiers must select portfolios from this list and perform sufficient procedures to determine that
the firm's classification of the portfolios as discretionary or not is appropriate
Verification Procedures: Allocation of Portfolios to Composites
Timing of inclusion of portfolios in the composite is in accordance with firm policies
Timing of exclusion of portfolios from the composite is in accordance with firm policies

Portfolio's investment mandate is in accordance with the composite definition

Portfolios are completely and accurately included in the right composite

Portfolios sharing the same mandate are in the same composite

Any movements from one composite to another are appropriate and consistent with firm policies

Verification Procedures: Data Review

Classification of portfolio cash flow is consistent with firm policies
Accounting treatment of income, interest, dividends, taxes, purchases, sales and valuation
methodologies is consistent with firm policies
Verification Procedures: Performance Measurement Calculation
Verification is no assurance that specific composite returns are calculated and presented correctly
Verifiers must recalculate rates of return for a sample of portfolios

Verifiers must sample composite and benchmark calculations

Verifiers must sample custom benchmark returns, if applicable

Verification Procedures: Other

Sampling of compliant presentations must be verified
Verifier must maintain sufficient records to back-up their assessment

Firm must provide Verifier with a letter confirming that firm policies have been applied consistently

32t GIPS: Challenges of calculating after-tax returns

Discuss challenges related to the calculation of after-tax returns

Because taxes are so country-specific, tax-related guidance is provided by GIPS country

sponsors
From 2011 on, any after-tax return data in a GIPS-compliant presentation must be presented as
supplemental information

Pre-liquidation calculation method only accounts for taxes incurred during the measurement
period, which ignores any capital gains taxes that will be applied when assets are sold

Mark-to-liquidation calculation method assumes that all gains are taxed each period even if they
are not realized, which ignores any benefit accrued by delaying tax payments

It is difficult to measure after-tax performance for a benchmark

Non-discretionary trades, such as those directed by a client, can have tax implications that
wouldn't have had an impact if the manager had retained complete autonomy

32u GIPS: Errors and Omissions in performance presentations

Identify and explain errors and omissions in given performance presentations and recommend changes
that would bring them into compliance with GIPS standards
This is a summary LOS that covers the scope of the entire reading, rather than a specific section. By
mastering the LOSs 33a to 33t, you will have mastered this one, too.