Reading 4: Global Investment Performance Standards (GIPS)-LOS 2011, Investment, statements, standards, describes

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

LOS a: Describe the key characteristics of the GIPS standards and the fundamentals of compliance.

 

 

Which of the following statements least accurately describes a key characteristic of the Global Investment Performance Standards (GIPS)?

A) All fee-paying, discretionary portfolios must be included in at least one composite.

B) A firm may not claim compliance with GIPS until it has recorded at least five years of GIPS-compliant performance data.

C) The distinct business entity that is claiming compliance with GIPS must be defined.

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If a firm has been in existence less than five years, it can claim GIPS compliance if it presents GIPS-compliant performance data since the firm's inception. The other statements are accurate.

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Which of the following statements regarding Global Investment Performance Standards (GIPS) is most accurate?

A) GIPS exists as a best or maximum worldwide standard where local or country specific law for investment performance measurement does not exist.

B) GIPS is intended to foster the notion of a world-wide regulatory body to oversee investment performance and measurement on a global scale.

C) GIPS requires that all fee-paying discretionary portfolios be included in composites defined according to investment objective or similar strategy and firms must show GIPS compliant history for a minimum of five years or since inception if a composite has existed less than five years.

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GIPS provides a minimum, not a maximum, standard for investment performance measurement and/or presentation. GIPS requires that all fee-paying discretionary portfolios be included in a composite, not rank ordered, to prevent firms from presenting the results of their best portfolios. GIPS is intended to foster the notion of self-regulation, not a world-wide regulatory body, to oversee investment performance and measurement.

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Which of the following is NOT an objective of the Global Investment Performance Standards (GIPS)?

A) To obtain worldwide recognition by securities regulators of a standard for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure.

B) To encourage self-regulation.

C) To encourage full disclosure and fair global competition without barriers to entry.

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GIPS applies to investment management firms and is intended to serve the existing and prospective clients of investment management firms, not regulators.

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Which of the following statements is a key characteristic of Global Investment Performance Standards (GIPS)?

A) GIPS exist as a minimum worldwide standard where local or country-specific law, regulation, or industry standards may not exist for investment performance measurement and/or presentation.

B) GIPS require firms to show GIPS-compliant history for a minimum of ten years, or since inception of the firm or composite if in existence less than ten years.

C) GIPS require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites defined according to similar strategy and/or investment objective.

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The GIPS standards: (1) do not require managers to include non-fee-paying accounts in composites, (2) require five years of GIPS compliant history, and (3) require compliance with local laws when they conflict with GIPS and disclosure of the conflict.

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Which of the following is NOT a key characteristic of the Global Investment Performance Standards (GIPS)? GIPS:

A) require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites defined according to similar strategy and/or investment objective.

B) require firms to use certain calculation and presentation methods and to make certain disclosures along with the performance record.

C) do not address every aspect of performance measurement, valuation, attribution, or coverage of all assets.

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The GIPS do not require managers to include non-fee-paying accounts in composites (Standard 3.A.1).

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Longhorn Investments prepares its performance presentations in accordance with Global Investment Performance Standards (GIPS). As part of its employee benefits package, Longhorn does not charge a fee to its employees for managing their portfolios. When calculating total firm assets for the purpose of GIPS compliance, Longhorn should:

A) include these employee portfolios.

B) only include those employee portfolios that are in discretionary accounts.

C) not include these employee portfolios because they are in non-fee-paying accounts.

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When calculating the firm’s total assets for a GIPS-compliant presentation, the market value of all discretionary and non-discretionary assets should be included, regardless of whether the account is fee-paying or not.

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Assume that on January 1, 2005, a 15-year old firm with no Global Investment Performance Standards (GIPS) compliant performance history wishes to claim compliance with the GIPS standards. Which of the following accurately reflects the appropriate action for the firm to take?

A) Comply with GIPS for the year beginning January 1, 2004, and report four additional years of performance history (five total) and disclose why the earlier years are not GIPS compliant.

B) Comply with GIPS for the year beginning January 1, 2004, and report nine additional years of performance history (ten total) and disclose why the earlier years are not GIPS compliant.

C) Comply with the GIPS standards for the 5-year period January 1, 2000, through December 31, 2004, and report five additional years of non-GIPS-compliant performance and disclosure of why the performance in the earlier years is not GIPS compliant.

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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. A firm may link a non-GIPS-compliant performance record to their 5-year compliant history as long as only GIPS-compliant performance is presented for periods after January 1, 2000, and the firm discloses the periods of non-compliance with an explanation of why the presentation is not GIPS compliant (Standard 4.A.15 and 5.A.1.a).

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Which of the following is least likely to be a requirement for a firm claiming compliance with Global Investment Performance Standards (GIPS)?

A) List discontinued composites for at least five years.

B) Provide a compliant presentation only to prospects who request one.

C) When jointly marketing with a noncompliant firm, make sure the compliant firm is clearly defined as separate from the noncompliant firm.

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To comply with GIPS, a firm must provide a compliant presentation to all prospects. For all prospects who request them, the firm must also provide a composite list and composite description, and a compliant presentation and composite description for any composite included in the firm’s list.

cheifmic

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luqian55

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