Yesterday I went through all of GIPS again in Schweser and skimmed some in CFAI and did all CFAI EOC Q’s (also asked some questions on this forum, so thanks for your input if you replied). I took notes while reading, which are below. Note that this does not include any of the “obvious” or easy stuff that most people on this forum already know (i.e. simulated returns not allowed, trade vs. settlement date accounting, etc.). The notes below are only items that when reading I was able to say to myself that I either didn’t know or didn’t remember. So it’s essentially a list of “not so obvious” items. Please let me know if you disagree with anything or have more similar “not so obvious” items to add. Hopefully this is a help to everyone.
Fees
GIPS: gross (but net recommended)
Real Estate: gross or net (but deduct transaction fees for both)
Real Estate Closed End Fund: net (but deduct transaction fees)
Private Equity: gross and net (but deduct transaction fees for both)
Private Equity FOF: gross of investment management fees but net of partnership/fund/expense fees & carried int)
SMA: net of entire bundled/wrap fee (unless direct trading expenses can be identified)
AMC: gross and net (like Private Equity)
Valuation/Return Frequency
GIPS: monthly and large external CF
Real Estate (including Real Estate Closed End Fund): quarterly
Private Equity: annually (but quarterly recommended)
Linking Non-compliant returns:
GIPS: must be compliant returns after January 1, 2000
Real Estate, Private Equity, and SMA: must be compliant returns after January 1, 2006
General GIPS
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Trading costs cannot be estimated, but inv. management fees should be accrued (for net returns)
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Investment Management fees may be modeled, though recommendation is to be accrued
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Direct Trading expenses: brokerage commissions, regulatory fees, duty/tax
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Indirect Trading Expenses: bid/ask spread
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Admin fees (i.e. custody fees) do not reduce net-of-fee returns
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If IM fees paid directly from client’s account, must be treated as external cash flows and deducted for gross-of-fee returns; if they are not paid directly from the client’s account, they must be attributed to the portfolio and deducted for net-of-fees returns
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Present Total Returns (income, realized and unrealized capital gains/losses)
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May use different calculation methodologies for different portfolios in same composite, if applied consistently
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Cash Returns: include in portfolio calculations as long as manager has control over amount allocated to cash, even if manager does not control cash investment
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Permitted to include a portfolio in more than one composite
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To remove significant cash flow effects, use temporary accounts: separate account for inflows, securities account for withdrawals
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Performance record of past firm linked if a) same decision makers, b) same decision making process, c) documented records of performance
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GIPS Advertising: Show one of the following sets of returns:
a) 1-,3-, and 5-year annualized composite returns
b) Period-to-date composite performance in addition to 1-,3-, and 5-year cumulative annualized composite returns
c) Period-to-date composite returns in addition to five years of annual composite returns
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Where leverage/derivatives do not have a material effect on returns, no disclosure is required
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Carve-out: only include in composite if separately managed with own cash balance and disclose:
a) method by which cash allocated to carve-out returns
b) the percentage of each composite represented by the carve-outs
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Not prohibited from making a benchmark change retroactively, although recommendation is to do it prospectively. Encouraged to continue to present old benchmark for prior periods. **Only rule I found that allows historical changes.
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Update compliant presentations quarterly
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Internal Dispersion
a) Required: 3 year ex post internal dispersion using standard deviation using monthly portfolio returns about composite aggregate return (can use SD of equal weighted annual returns or asset weighed SD of annual returns)
b) Required: additional 3 year ex post internal dispersion if standard deviation (part a. above) inappropriate (can use range, high low, interquartile)
c) Recommended: an external measure, such as standard deviation of monthly composite returns
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Performance can be done at composite level; verification must be done at firm level
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Annualizing returns: less than one year not allowed; more than one year allowed
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R/E subject to general GIPS provisions: Publicly and privately traded debt, REITs, CMBS
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Private Equity subject to general GIPS provisions: open-end and evergreen funds
Real Estate-Specific:
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External Evaluators: should be annual, and should rotate external evaluators every 3 to 4 years
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R/E income and capital returns: either chain link and disclose (because they won’t sum) or force components to equal and disclose method
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Internal Dispersion: high and low annual time-weighted returns for individual portfolios in composite
Private Equity-Specific:
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Daily Cash flows used in calculating SI-IRR
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Private Equity Fund of Funds: group by vintage (year in which PE fund first draws down capital) and seven measures
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Private Equity Fund of Funds: disclose percentage of composite assets invested in direct investments and percentage of composite assets invested in fund investment vehicles