GIPS

Fundamental of compliance

GIPS applies to firms, not individuals. An analyst cannot be GIPS compliant

The goal is fair representation and disclosure across investment opportunities for the public
It fosters the notion of self regulation within the industry
Each section includes requirements and recommendations for compliance. I would focus
on the requirements if time is limited.
All actual, fee-paying, discretionary portfolios must be included in at least one composite
No non-discretionary portfolios, but non-fee paying portfolios may be included
Must calculate time-weighted total portfolio returns with external cash flows using daily
weighting
Only actual assets, no model portfolios or simulations

Input data

Calculation methodology

Valuation hierarchy

Composite construction

Disclosure

If they have met all requirements using the appropriate compliance statement (verbatim!)
Definition of the firm and description of composites (with creation date) and benchmarks
If they are presenting gross of fees and any fees deducted
If presenting net of fees, if model or actual management fees are deducted
Currency used in presentation
Measure of internal dispersion
Fee schedule
Use and extent of leverage, derivatives and short positions
Date, description and reason for redefinition of firm or composites
Minimum asset levels for composites
Treatment of withholding taxes, dividends, interest and capital gains
Bundled fees and the types of bundled fees
Sub-advisors and the period in which they were used
 Any portfolios that were not valued at month end or last business day
Use of subjective unobservable valuation inputs
If no benchmark is used and why
Custom benchmarks used; description, date of creation, components, weights and rebalancing
process
Whether the performance of a past firm or affiliation is linked (only appropriate if
substantially all decision makers came over to new firm, the process remains substantially the
same, and the firm has documentation of the performance history).

Presentation and reporting

Total benchmark return for each period must be presented

Composite assets at the end of each year
Total firm assets or % of firm assets in each composite
Returns of less than one year cannot be annualized
% of composite in non-fee paying portfolios
% of composite in bundled fee portfolios
Five years of GIPS compliant performance or since inception if 5-years not available
Firms must add one year each year until at least ten years of data is reported

Real estate

Be able to calculate the income return and capital return for real estate funds

Private equity

ValuationforPortfolios:

BeforeJan1,2001quarterly.
Jan1,2001toJan1,2010monthly,
postJan12010dateofalllargeexternalCFs

ReturnsforPortfolios:

PriortoJan1,2005(originaldietz)
Jan1,2005mustusemethodthatapproximatesreturnsthatadjustfordailywtdexternalCFS
(modifieddietz,modifiedIRR)
Jan1,2010DateofalllargeexternalCFs(TWRR)

CompositeReturns

PostJan1,2006,AssetWeightportfolioreturnsusingquarterlyinfo.
PostJan1,2010,AssetWeightusingmonthly[assetweightingsuseBMV]
PostJan1,2011,3yearannualizedexpostSDusingmonthlyreturns
<=5portfoliosmeansnoneedtoreportdispersionmethod
<=5portsmeansdontneedtolist#ports

TradeDateaccountingrequiredpostJan12005

Carveoutreturns

PriortoJan12010muststatehowcashwasallocatedtothecarveoutportion(begperiodor
strategicasset).
Jan12006mustdisclosepercentcompositerepresentedbycarveouts.
Jan12010canonlyusecarveoutreturnsincompositeifcarveoutisactuallymanagedina
separateaccountw/itsowncashbalance

Realestate

PostJan1,2008,quarterlyvaluation(annualprior).
Post2012,annualvaluationbyindependent3rdpartyprofessional(onceevery3yrprior).

Privateequity

ReportbothgrossandnetSinceInceptionIRR(SIIRR).
PostJan,2011,SIIRRmustusedailyCFs,forpriorperiodsitcanbemonthlybutmustsaysoif
thecase.
ValuedannuallybyexperiencedindividualsunderdirectsupervisionofSr.Mgmt.


WRAP/SMAports:

Mustpresentnetoftheentirefeeregardlessofthefeescontainedw/inthewrapfee.
Ifthewrap/smaisastyledefinedcomposite,mustincludeallportfoliosthatfirthisstyle
regardlessofthesponsor.
Ifcompositeincludesonlysponsorports,wrap/smacanchoosetonotshowthepresentation
netoftheentirefee,butmustdisclosethesponsor,andthatthesponsorspecific
presentationisonlyforusebythelistedsponsor(toavoidpeoplegettingallconfusedthinking
theycangetthatparticularfeebreakdown)

Real Estate Capital Employed = Co +[ sum (cf*wi)] - again, weight calc as previously said

Capital Return =( MV1-MV0-Capex+Sales)/Capital Employed - because MV1 will be reduced by sales,

but sales are inflows, you must add them back, likewise capex are outflows

Income Return = (Inc - NRE - INT-Tp) / Capital employed

Inc =gross int income, NRE = non-refundable expense, INT = int on debt, Tp = prop taxes

Capital return + Income Return = Total Return