CFAI Ng Case- GIPS (Topic Tests and Mock Exams)

CFA Level III Portfolio Management
#1

Can someone help shedding more light on: A) why Policy 2 is wrong, B) is the 10th date a guideline? I took a look at the schweser books and couldnt find anything. Just that the removing cannot be retroactive / backdated, which is not what is being said here.

THANKS IN ADVANCE!!

Relevant part of the case:

"Ng then asks about Rune’s policies for the inclusion of portfolios in composites. Arnott responds that Rune has the following policies for all composites:

Policy 1: All new accounts funded with cash or securities on or before the 10th day of the month are added to the composite at the beginning of the following month. Those funded after the 10th day of the month are added at the beginning of the 2nd month after funding, or at the beginning of the calendar month after the proceeds are substantially invested in the appropriate strategy.

Policy 2: All portfolios are deemed “non-discretionary” on the date the notice of termination of the management relationship is received and removed from the composite at the end of the month of notification."

The question:

"

Which policy on the inclusion of portfolios in composites is most likely compliant with the GIPS standards?

Policy 1 and Policy 2 Policy 2 Policy 1

Incorrect.

The policy on account inclusion is compliant with the standards."

#2

Policy 2 is wrong because the portfolio should be reported in the composite through the last full measurement period prior to notification of termination.

#3

A) When a portfolio becomes non discretionary on say 17 April and your cut off period is usually end of month then April won’t be counted for this portfolio. You will include it until the last measurement period, i.e. 31 March.

B) 10th date is not a requirement. It could have been 15th and still be correct. The key is that you should have a fixed cut off date and stick to it.

#4

abeshak sindhi, krokodilizm

Makes sense. Fantastic, thanks!