The definition from the curriculum states: To comply with the GIPS standards, a firm must be an investment firm, subsidiary, or division held out to clients or potential clients as a distinct business entity (I.0.A.12; emphasis added). The GIPS Glossary entry defines a distinct business entity as a “unit, division, department, or office that is organizationally and functionally segregated from other units, divisions, departments, or offices and that retains discretion over the assets it manages and that should have autonomy over the investment decision- making process.” Possible criteria for identifying a distinct business entity are the organization being a legal entity, having a distinct market or client type, or using a separate and distinct investment process.
Anyone have an easier way to pick out firms that can/shouldn’t claim compliance??
Basically if a group is being held out as a distinc entity then it can claim compliance. Whether it be a legal entity, division, group, etc, if the public views it as seperate entity then it can claim compliance.
Also the firm must be the one making their own investment decision. The parent cannot be the one doing the decision making or have the same decision makers. The “logic” for it is if they’re the same investment divison makers using similar process and committes why the heck aren’t they the same firm. It is to prevent firms from just spinning out a divison who are GIPS compliant and the parent stay non-compliant. I think there was a question asking these realationships in either mock or EOC.
I can’t find it now, but I remeber a question in some practice test that said a “firm” could not claim compliance as a separate entity bc it shared back office functions with another part of the company, but then a separate question elsewhere which implied that such back office sharing wasn’t important as long as investment decisions, etc, were indepdendent. Sorry, wish I could cite the questions… Any thoughts on this?
