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2015, Study Session # 1, Reading # 3



3. a Historical Misleading Reporting Procedures

Representative Accounts Survivorship Bias Varying Time Periods

Top-performing portfolio Excluding weak Showing excellent

representative of firm’s performance accounts. performance of selected
overall investment results. time periods.

 GIPS ⇒ set of ethical principles (standardized, industry-

wide & voluntarily followed by firms).
 Clients have more confidence in reported performance &
can easily compare investment firms’ performances.

3. b

 Composite ⇒ grouping of individual discretionary portfolios representing

a similar investment strategy, objective or mandate.
 Provide information about investment style results & various types of
securities being managed.
 Each portfolio is assigned to a composite before its performance is known
(no intentional superior composite creation).

3. c Verification

Requirements Recommendations

 Performed by independent third party  Firms are encouraged to pursue

(firm-wide basis). independent verification.
 Verifier must attest;  Disclosure language;
 Firm has compiled with composite  “[insert name of firm] has been verified
construction requirements. for the periods [insert dates] by [name of
 Firm’s policies and procedures are verifier]. A copy of the verification report
designed to present and calculate is available upon request.”
performance in accordance with the
GIPS standards.

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