A charitable foundation transfers securities in kind to Taurus Asset Management Ltd. to fund a new bank loan portfolio. Taurus estimates that after liquidating the transferred securities, it will take five months to invest the foundation’s assets in bank loans. Which statement best describes a requirement of the GIPS standards? Taurus must include the foundation’s portfolio in the appropriate composite:
A. on a timely and consistent basis.
B.when the assets are substantially invested.
C.as of the beginning of the next full measurement period.
Question ans is A… seems different from what they say below?
But I am confused, below is the text directly from CFA
Any thoughts. Thanks in advance
P.s. is it only that feels like the CFA lvl 3 question bank are of poor quality?
This question is a tiny bit confusing, but here are my thoughts (someone else can feel free to chime in an correct me):
GIPS normally requires that composites only include portfolios that the firm has full discretion over, but if there are any restrictions, or anything that may hinder the manager’s ability to fully act on their strategy, then that does not necessarily count as them having full discretion. Taurus Asset Management receiving funding in kind forces them to liquidate the securities over the course of five months before they can fully implement their strategy, meaning that for that five month period they do not have full discretion over the portfolio.
It may take time to invest the assets of a new portfolio in accordance with the desired investment strategy, however, particularly when the portfolio is funded in kind … and the assets have to be redeployed…
It is not C, because the next full measurement period is the next month, but Taurus does not have full discretion until after five months.
It’s not B, because say if the assets are substantially invested in the middle of the month, they can not add it to a composite in the middle of the month.
