Reading 49: Global Investment Performance Standards－LOS a benefits, standards, investment, Investment, 2008

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CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 18: Global Investment Performance Standards
Reading 49: Global Investment Performance Standards
LOS a: Summarize the reasons for the creation of the GIPS standards, the Standards evolution, and their benefits to prospective clients and investment managers.

tycoon

Which of the following statements most accurately describes why the Global Investment Performance Standards (GIPS) were created? To:

A) meet the need for a single globally accepted set of regulatory guidelines among developed securities markets.

B) provide comparability of performance results among nations for which no presentation guidelines currently exist.

C) meet the need for a single globally accepted set of investment performance presentation standards.

D) expand the extent of the influence of the CFA Institute.

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Answer and Explanation

Recognizing the need for one globally accepted set of investment performance presentation standards, CFA Institute sponsored and funded the Global Investment Performance Standards Committee to develop and publish a single global standard by which all firms in all countries calculate and present performance to clients and prospective clients.

tycoon

Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based?

A) Fair and consistent application of a global set of regulatory requirements.

B) Fair treatment of entities associated with securities law infractions.

C) Uniformity and consistent application of standards for the global regulation of the securities industry.

D) Full disclosure and fair representation of performance results.

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Answer and Explanation

The GIPS standards are a set of voluntary standards based on the fundamental principles of full disclosure and fair representation of performance results.

tycoon

As countries adopt the Global Investment Performance Standards (GIPS), which of the following is least likely to occur?

A) The trend toward cross country investments will decline.

B) Competition in the global investment industry will be enhanced.

C) Existing and potential clients will be able to make fair and unambiguous comparisons among investment firms.

D) Investment consultants will be better equipped to fairly assess historical investment performance.

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Answer and Explanation

There is no reason to expect the level of international investing to decline as a result of the adoption of a global set of performance standards. If anything, international investing will become more attractive as the credibility of reported performance results improves.

tycoon

Which of the following lines of argument has/have been put forth to justify the establishment of the Global Investment Performance Standards (GIPS)?

A) Enhancing the consistency in performance presentation for inter-country holdings.

B) Enhancing consistency in the use of the standards.

C) Enhancing competition in global markets.

D) All of these choices are correct.

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Answer and Explanation

The GIPS are needed are to enhance consistency in performance presentation for inter-country holdings, consistency in the use of standards, competition in global markets, and investor confidence.

tycoon

Which of the following lines of argument has/have been put forth to justify the establishment of the Global Investment Performance Standards (GIPS)?

A) To increase the confidence that prospective and existing clients have in the industry.

B) To enhance consistency in the use of the standards.

C) All of these choices are correct.

D) To make the managers from countries (that previously had inferior standards) taken more seriously when presenting their performance.

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Answer and Explanation

The GIPS are needed are to enhance consistency in performance presentation for inter-country holdings, consistency in the use of standards, competition in global markets, and investor confidence.

tycoon

The Global Investment Performance Standards (GIPS) are necessary for all of the following reasons EXCEPT to:

A) enhance investor confidence and allow investors to make more meaningful comparisons.

B) meet the increasing need for standardization of calculation and presentation that accompanies the increasing globalization of financial markets.

C) enhance competition in global markets by creating a universal set of standards that places managers from all countries on an equal footing in soliciting clients.

D) broaden the application and acceptance of the performance presentation guidelines of foreign and domestic regulatory entities.

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Answer and Explanation

GIPS are necessary for the following reasons:

• Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.
• Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.
• Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.
• Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

GIPS are necessary for the following reasons:

• Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.
• Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.
• Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.
• Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

tycoon

All of the following are reasons why the Global Investment Performance Standards (GIPS) are necessary EXCEPT enhancing:

A) investor confidence.

B) competition in global markets.

C) consistency in the use of standards.

D) market efficiency:

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Answer and Explanation

The GIPS are necessary for the following reasons:

• Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.
• Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.
• Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.
• Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

The GIPS are necessary for the following reasons:

• Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.
• Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.
• Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.
• Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

tycoon

All of the following are reasons why the Global Investment Performance Standards (GIPS) are necessary EXCEPT to enhance:

A) competition in global markets.

B) consistency in the use of standards.

C) consistency in performance presentation for inter-country holdings.

D) the application of global accounting standards.

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Answer and Explanation

GIPS are necessary for the following reasons:

• Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.
• Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.
• Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.
• Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

GIPS are necessary for the following reasons:

• Enhancing consistency in performance presentation for inter-country holdings. The financial markets are becoming increasingly more global in nature. Because of extensive inter-country holdings, standardization of presentation is vital for meaningful and consistent performance presentations to occur.
• Enhancing consistency in the use of standards: Return calculation and performance presentation guidelines, if present, vary greatly among countries. Even when guidelines exist in a county, they may not be extensively followed.
• Enhancing competition in global markets: The establishment of global standards places managers from all countries on an equal footing in soliciting clients. Managers from countries that previously had inferior standards will be taken more seriously when presenting their performance, while managers from countries with stronger standards will not be penalized when competing in markets where inferior standards prevail.
• Enhancing investor confidence: Global standards increase the confidence that prospective and existing clients have in the industry and allow them to make more meaningful comparisons.

tycoon

The Global Investment Performance Standards (GIPS) apply to investment management firms. They are NOT intended to serve which of the following?

A) Securities market regulators.

B) Prospective clients of investment firms.

C) Existing clients of investment firms.

D) Consultants that advise investors.

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Answer and Explanation

The GIPS are intended to serve potential and existing clients and consultants that advise these investors.