Reading 4: Global Investment Performance Standards (GIPS?)-L 2010, Investment, definition, investment, standards

bmaggie

Session 1: Ethical and Professional Standards
Reading 4: Global Investment Performance Standards (GIPS^?)

LOS b: Describe the scope of the GIPS standards with respect to an investment firm's definition and historical performance record.

 

 

 

With respect to reporting investment results, Global Investment Performance Standards (GIPS) require a minimum of:

A) ten years of historical performance.

B) three years of historical performance.

C) five years of historical performance.

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GIPS require a minimum of five years of conforming historical performance results.

bmaggie

Whenever an investment management firm presents its investment performance as being in compliance with the Global Investment Performance Standards (GIPS), it must state how it defines itself as a firm. Under GIPS, a firm may define itself for the purpose of claiming GIPS compliance using any of the following options EXCEPT when:

A) all assets are managed to one or more base currencies.

B) an investment firm, subsidiary, or division is held out to clients or potential clients as a distinct business unit.

C) the subsidiary or division of a company claims GIPS compliance when the parent company is GIPS compliant.

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In order for an investment firm to claim GIPS compliance, GIPS must be applied on a firmwide basis. If the parent company is GIPS compliant, this does not automatically mean the divisions or subsidiaries are compliant. A division or subsidiary of a company would also have to comply with GIPS to be able to claim compliance. If an investment firm, subsidiary, or division is held out to clients or potential clients as a distinct business unit it can claim GIPS compliance even if the parent company is not compliant.

bmaggie

Which of the following is NOT an important characteristic of how a firm defines itself? The firm definition establishes the:

A) boundaries for what is included when measuring the total firm's assets.

B) entity to which local securities laws apply when they exceed the GIPS requirements.

C) set of portfolios that must be included in at least one of a firm's composites.

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When a firm claims compliance with GIPS, it must be compliant on a firm-wide basis. The definition of the “firm” under the GIPS standards establishes the boundaries for what constitutes firm assets, and the set of portfolios that must be included in at least one composite.

bmaggie

Assume that on January 1, 2005, a firm with no Global Investment Performance Standards (GIPS) compliant history since its inception four years ago wishes to claim compliance with GIPS. Which of the following accurately reflects the appropriate action for the firm to take?

A) Comply with GIPS for the year beginning January 1, 2002, and report its performance prior to this date with a disclosure of why the earlier years are not GIPS compliant.

B) Comply with GIPS for all four periods since the firm's inception.

C) Nothing, a firm must have five years of compliant performance history to claim compliance with GIPS.

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In order to claim GIPS compliance, a firm must present at least five years of annual investment performance that is compliant with GIPS. If a firm or composite is less than five years old, the performance since the inception of the firm or composite must be presented.

bmaggie

Which of the following was NOT a motivation for creating the Global Investment Performance Standards (GIPS)?

A) Achieve greater uniformity and comparability among presentations of performance.

B) Improve the service offered to investment management clients.

C) Increase the role of government agencies in the investment industry.

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All of these were motivations for creating GIPS except to increase the role of government. In fact, these standards have been created to bolster the notion of self-regulation and reduce the encroachment of government into the investment industry.

zaestau

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gaoflex

Thank you.