LOS s: Identify errors and omissions in given performance presentations, including real estate and private equity performance presentations.

Q1. In reports of private equity, with respect to GIPS, which of the following represents an error or omission?

A)   Keeping discontinued composites on the firm’s list of composites for longer than a year.

B)   Not disclosing the period-end used for a composite if it is not a calendar year end.

C)   Not reporting the average holding period of the investments of a fund.

Q2. A firm reports returns on real estate investments. The firm has not complied with GIPS by committing an omission or error if it:

A)   computes returns based on capital employed, computed by adjusting the beginning capital for time-weighted cash flows that occur during the measurement period.

B)   reports total return without its components: income return and capital return.

C)   reports total return with its components: income return and capital return.

Q3. In the presentation of a private equity fund, a firm reports an annualized since-inception (SI) internal rate of return (IRR) net-of-fees but not gross-of-fees. The net-of-fees returns are not net of carried interest. With respect to GIPS, the firm has:

A)   made an error by not reporting returns gross-of-fees and by not netting out carried interest.

B)   made an error by not reporting returns gross-of-fees but netting out carried interest is not required so that is not an error.

C)   made an error by not netting out carried interest but not by omitting returns calculated gross-of-fees.

LOS s: Identify errors and omissions in given performance presentations, including real estate and private equity performance presentations. fficeffice" />

Q1. In reports of private equity, with respect to GIPS, which of the following represents an error or omission?

A)   Keeping discontinued composites on the firm’s list of composites for longer than a year.

B)   Not disclosing the period-end used for a composite if it is not a calendar year end.

C)   Not reporting the average holding period of the investments of a fund.

Correct answer is B)

Standard 7.A.19: The period-end used for a composite must be disclosed if it is not a calendar year-end. Discontinued composites must be kept on the list at least five years. Average holding periods are recommended but not required.

Q2. A firm reports returns on real estate investments. The firm has not complied with GIPS by committing an omission or error if it:

A)   computes returns based on capital employed, computed by adjusting the beginning capital for time-weighted cash flows that occur during the measurement period.

B)   reports total return without its components: income return and capital return.

C)   reports total return with its components: income return and capital return.

Correct answer is B)

Standard 6.A.3.a requires the firm report must report total return and also the components of income and capital return.

Q3. In the presentation of a private equity fund, a firm reports an annualized since-inception (SI) internal rate of return (IRR) net-of-fees but not gross-of-fees. The net-of-fees returns are not net of carried interest. With respect to GIPS, the firm has:

A)   made an error by not reporting returns gross-of-fees and by not netting out carried interest.

B)   made an error by not reporting returns gross-of-fees but netting out carried interest is not required so that is not an error.

C)   made an error by not netting out carried interest but not by omitting returns calculated gross-of-fees.

Correct answer is A)

Standard 7.A.20: The GIPS provision for private equity presentation and reporting require firms to present both the net-of-fees and the gross-of-fees annualized SI-IRR of the composite for each year since inception. Standard 7.A.4: The net-of-fees must be net of carried interest, representing the percentage of profits on the fund’s investments that general partners receive, as well as investment management fees and transaction expenses.

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