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LOS c: Explain the fundamentals of compliance with the GIPS standards, including the definition of the firm, the conditions under which an investment management firm can claim compliance, and the correct wording of the GIPS compliance statement. ffice ffice" />
Q1. Eric Jicu, a highly successful portfolio manager of the EJ Fund, wishes to define the EJ Fund as a firm under the Global Investment Performance Standards (GIPS?) standards. Jicu is employed by National Investing Alliance (NIA), a small regional brokerage firm. Although he has disclosed this information to his superiors at NIA, he would like to disclose his compliance for marketing purposes by using his past actual performance results of five years, which included two years of simulated results. Jicu also managed several non-fee-paying portfolios that were non-discretionary under a different investment style. Since the results of these non-discretionary portfolios were highly successful, he wanted to include them into his EJ Fund composites for compliance. In his statement of compliance, Jicu wrote: “The EJ Fund has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?).”
In defining a firm, does the EJ Fund qualify as a firm under GIPS?
A) No, since to claim compliance NIA must be included.
B) Yes, since the EJ Fund is a separate entity it does qualify under GIPS.
C) No, since there is no mention that Jicu is incorporated he cannot qualify as a firm.
Correct answer is A)
No, the EJ Fund does not qualify as a firm for GIPS compliance. In order to claim compliance, NIA must be included. In order for an investment firm to claim GIPS compliance, the GIPS must be applied on a firmwide basis. The key here is the definition of the firm, because it establishes the boundaries for what constitutes firm assets, and the set of portfolios that must be included in at least one composite. According to the GIPS, firms must be defined as:
"An investment firm, subsidiary, or division held out to clients or potential clients as a distinct business entity. This means that a subsidiary or division of a firm can claim compliance with the GIPS even if the parent company is not GIPS compliant."
Whenever an investment management firm presents investment performance in compliance with GIPS, it must state how it defines itself as a “firm.”
Q2. In constructing the historical results of the EJ Fund, is Jicu correct in his approach?
A) No, because simulated results cannot be included with actual performance results.
B) Yes, because he included five years of actual performance data.
C) No, because GIPS requires a minimum of ten years of performance before claiming compliance.
Correct answer is A)
Jicu is not correct because simulated results must not be included with actual performance results. Under GIPS, composites must include only assets under management and may not link simulated or model portfolios with actual performance. Simulated, back-tested, or model portfolios results do not represent the returns of actual assets under management and may not be included in composite performance results.
Q3. In constructing the composites, is Jicu correct in his approach?
A) No, since fee-paying and non-fee-paying portfolios cannot be included in the same portfolio.
B) Yes, since fee-paying and non-fee-paying portfolios can be included in the same composite as long as they have the same investment objectives.
C) No, since the fee-paying discretionary portfolios are managed under a different investment style as the non-fee-paying non-discretionary portfolios.
Correct answer is C)
Jicu is not correct in the construction of composites. They may not include any non-fee paying and non-discretionary portfolios in his composite because they have a different investment objective and style than the EJ Fund. Non-fee-paying portfolios may be included in the firm’s composites, but if they are, firms are required to disclose the percentage of composite assets represented by non-fee-paying portfolios. If the firm includes non-fee-paying portfolios in its composites, they are subject to the same rules as fee-paying portfolios. If a portfolio’s status changes from discretionary to non-discretionary, the portfolio may not be removed from a composite retroactively. However, the portfolio may be removed on a prospective basis. Composites must include all actual fee-paying discretionary portfolios. All actual fee-paying discretionary portfolios must be included in at least one composite. By including all fee-paying discretionary portfolios in at least one composite, firms cannot cherry-pick their best performing portfolios to present to prospective clients. Firms are permitted to include a portfolio in more than one composite, provided it satisfies the definition of each composite.
Firm composites must be defined according to similar investment objectives and/or strategies. Composites should be defined such that clients are able to compare the performance of one firm to another. Composites must be representative of the firm’s products and be consistent with the firm’s marketing strategy. Firms are not permitted to include portfolios with different investment strategies or objectives in the same composite. Portfolios may not be moved into and out of composites except in the case of valid, documented, client-driven changes in investment objectives or guidelines or in the case of the redefinition of the composite.
Q4. In the compliance statement, is Jicu correct is claiming compliance?
A) No, since Jicu’s GIPS compliance statement is not written correctly.
B) No, since Jicu is not in full compliance with GIPS.
C) Yes, since Jicu is in compliance with GIPS.
Correct answer is B)
No, Jicu may not claim compliance for the EJ Fund for all of the above reasons. A firm must be in full compliance with the GIPS in order to claim GIPS compliance. There is no such thing as partial GIPS compliance! Once a firm has met all of the required elements of the GIPS, the firm may use the following Compliance Statement to indicate that the performance presentation is in compliance with the GIPS: [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?). If the performance presentation does not meet all of the requirements of the GIPS, firms cannot claim compliance with any exceptions.
Q5. If DeLecrette Investment Management wishes to claim compliance with the Global Investment Performance Standards (GIPS?) for their annual financial report, the report must include which of the following statements?
A) DeLecrette Investment Management has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?).
B) DeLecrette Investment Management has prepared and presented this report in compliance with the Global Investment Performance Standards of the CFA Institute (CFA Institute -GIPS?). The CFA Institute Global Investment Performance Standards Committee has not been involved with the preparation or review of this report.
C) DeLecrette Investment Management has prepared and presented this report in compliance with the Global Investment Performance Presentation Standards of the CFA Institute(CFA Institute -GIPS?). CFA Institute has not been involved with the preparation or review of this report.
Correct answer is A)
To claim compliance, a firm must meet all required composite, calculation, disclosure, and presentation Standards. The firm is also encouraged to comply with all recommended Standards and must comply with local laws and regulations. Firms that claim compliance to the GIPS may attach the following statement to performance presentations:
[Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?).
Note that no statement about CFA Institute’s involvement with the preparation or review of the report is included – this is a key difference between GIPS and CFA Institute-PPS.
Q6. Which of the following compliance statements is mandated by the Global Investment Performance Standards (GIPS)?
A) [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS).
B) [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS) of the CFA Institute. CFA Institute has not been involved in the preparation or review of this presentation.
C) [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?).
Correct answer is C)
GIPS mandates that firms use the following compliance statement when claiming complaince with the Standards: [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?). Note the registered trademark symbol (?).
Q7. Which of the following is NOT an important characteristic of how a firm defines itself? The firm definition establishes the:
A) entity to which the GIPS standards apply when a claim of compliance is made.
B) set of portfolios that must be included in at least one of a firm's composites.
C) entity to which local securities laws apply when they exceed the GIPS requirements.
Correct answer is C)
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.
Q8. PTN, Inc., is an investment consulting firm. It has used Global Investment Performance Standards (GIPS) since its inception two years ago. PTN claims to be in compliance with GIPS. Could this statement be TRUE?
A) No, consulting firms cannot be GIPS compliant.
B) No, PTN does not have a five-year compliance track record.
C) Yes, PTN does not have a five-year track record, so since inception is sufficient.
Correct answer is A)
Only investment management firms may claim compliance with GIPS because they actually manage the assets for which performance is reported.
Q9. 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) the subsidiary or division of a company claims GIPS compliance when the parent company is GIPS compliant.
C) an investment firm, subsidiary, or division is held out to clients or potential clients as a distinct business unit.
Correct answer is B)
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.
Q10. Which of the following compliance statements is most acceptable under the Global Investment Performance Standards (GIPS)?
A) [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?).
B) [Insert name of firm] has prepared and presented the performance results in compliance with the Global Investment Performance Standards (GIPS?) for all composites containing equity investments.
C) [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?) and the CFA Institute.
Correct answer is A)
GIPS mandates that firms use the following compliance statement when claiming complaince with the Standards: [Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?). Note the registered trademark symbol (?). There is no such thing as partial compliance or Level III GIPS verification and CFA Institute should not be referenced.
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发表于 2009-4-10 15:47
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