JustasS

Brown and Brown Associates is a money management firm that is advertising that it is GIPS compliant. In its advertisements, the statement that the firm can use in claiming compliance is:

A) “Brown and Brown Associates has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS®)”.

B) “CFAI confirms that Brown and Brown Associates are in compliance with the Global Investment Performance Standards (GIPS®)”.

C) “Brown and Brown Associates claims compliance with the Global Investment Performance Standards (GIPS®)”.

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The correct statement is “Brown and Brown Associates claims compliance with the Global Investment Performance Standards (GIPS®)”.

JustasS

According to the GIPS valuation principles, for periods beginning January 1, 2011, firms must:

A) use only objective valuation methods.

B) disclose the use of any subjective valuation inputs.

C) disclose the use of any subjective valuation inputs if the portfolio is a significant portion of the composite.

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For periods beginning on or after January 1, 2011, firms must disclose the use of any subjective valuation inputs if the portfolio valued using the subjective input represents a significant portion of the composite.

JustasS

Which of the following regarding the GIPS real estate valuation principles is most accurate?

A) Fees paid to external valuators must not be based on resulting value.

B) The GIPS recommend that real estate investments be valued externally by outside sources.

C) The GIPS require the reporting of a single appraisal value.

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The amount of the external valuator’s fee must not be based on the resulting value. The GIPS require(not recommend) that real estate investments be valued externally by outside sources. Although appraisal standards allow reporting values in ranges, the GIPS recommend (not require) the reporting of a single value.

JustasS

Which of the following is least likely a GIPS valuation requirement?

A) Firms must disclose if their valuation hierarchy differs from the GIPS recommended hierarchy.

B) If local laws or regulations related to valuation conflict with GIPS, firms are required to follow the more strict of the law or standard.

C) Firms must disclose their portfolio valuation policies and hierarchy.

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If local laws or regulations related to valuation conflict with GIPS, firms are required to follow the local laws or regulations and disclose the conflict. The other two answer choices are both GIPS valuation requirements.

JustasS

A firm does not disclose the valuation hierarchy that they are employing to value an asset, but the firm is properly following GIPS valuation principles. If the valuation of the asset cannot be determined through objective and observable pricing for similar investments in active markets, which of the following should be the "next source" of a valuation estimate, in accordance with CFA Institute GIPS recommendations?

A) Market-based input other than quoted pricing that is observable for the asset.

B) Subjective, unobservable inputs.

C) Quoted pricing for similar and/or identical assets in markets that are not active.

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If the firm does not disclose the valuation hierarchy that they are employing and is following the GIPS valuation principles, then the firm is using the recommended GIPS valuation hierarchy. The GIPS valuation hierarchy is as follows:

• Quoted prices from an active market for the same or similar security.
• Quoted prices from an inactive market for the same or similar security.
• Observable market-based inputs other than quoted prices.
• Subjective, unobservable inputs.

Based on this hierarchy, if observed market prices from an active market are not available, the next best valuation basis is to use quoted prices from an inactive market.

JustasS

For private equity, valuations must be prepared:

A) annually only, and the lack of liquidity of private equity prohibits quarterly valuations.

B) at least annually, but quarterly valuations are recommended.

C) at least quarterly, but monthly valuations are recommended.

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Standard 7.A.2 valuations must be prepared at least annually. Standard 7.B.1 is a recommendation stating that Private Equity investments should be valued at least quarterly.

JustasS

Stroud Investments is preparing a wrap fee presentation for a potential wrap fee client. According to the GIPS standards, the investment performance contained in the presentation must be:

A) gross of fees.

B) net the portion of wrap fees that can be directly tied to transaction expenses.

C) net of the entire wrap fee.

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According to standard 8.A.6, performance presentations to potential wrap fee clients must be net of the entire wrap fee.

JustasS

Handley Asset Management (HAM), an investment management firm founded in 2000, manages wrap and other non-wrap accounts. HAM is preparing a wrap fee presentation for its small-cap value composite. The performance results in the presentation date back to 2002; however, the firm began including wrap fee portfolios in the composite in 2006. Which of the following statements is most accurate?

A) To be compliant with GIPS, HAM must disclose each period when an actual wrap fee portfolio was not in the composite being identified.

B) HAM’s presentation is compliant with GIPS as is and no change or disclosure is required.

C) To be compliant with GIPS, HAM must exclude the wrap fee portfolios from its presentation results.

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According to standard 8.A.2, when presenting composite returns in wrap fee/SMA compliant presentations, the firm must disclose each period in which the composite does not contain actual wrap fee portfolios.

JustasS

According to GIPS, when presenting performance to a prospective wrap fee sponsor, an investment manager must:

A) disclose the names of the wrap fee sponsors when presenting sponsor-specific composites.

B) present performance of all wrap fee accounts in the composite being presented.

C) not link non-compliant performance that occurs before 1 January 2006 with compliant performance.

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According to standard 8.A.5, when soliciting business from potential SMA/wrap fee clients, firms must provide presentations that include all SMA/wrap fee accounts managed to the stated objective or strategy.
In standard 8.A.4, sponsor-specific composite results are presented to an existing wrap fee sponsor, not a potential sponsor.
According to standard 8.A.7, firms may link non-compliant performance with compliant performance as long as the non-compliant performance pertains to periods before 1 January 2006 and only compliant data is presented for periods after 1 January 2006.

JustasS

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) calculates income returns and capital returns using geometrically linked time-weighted rates of return.

C) reports total return but not income return and capital return.

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