cross-ied

A firm calculates income return, capital return and total return for their real estate composite using the GIPS provisions for real estate. Is it necessary for the sum of income return plus capital return to equal total return in each quarter, and the sum of the four quarterly income returns to equal the income return for the year?

Quarterly Sum

Annual Sum

A) No Yes

B) Yes Yes

C) Yes No

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For each period, the total return must equal income return plus capital return. However, for the year, each component of return (i.e. income and capital) may be calculated using chain-linked time-weighted rates of return. Hence the annual return will slightly exceed the sum of the quarterly returns.

JustasS

The GIPS provisions for private equity require the vintage year to be presented. Which of the following best describes the vintage year? The vintage year is the year in which:

A) the first material investment was made.

B) capital is first drawn down from investors.

C) the composite was created.

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By definition, the vintage year is the year in which capital is first called from or drawn down from investors.

JustasS

Which of the following ratios is least likely to be shown in a performance presentation under the GIPS provisions for private equity?

A) Paid-in capital to committed capital.

B) Total value to residual value.

C) Cumulative distribution to paid-in capital.

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The required ratios for presentation are: total value to paid-in capital, cumulative distributions to paid-in capital, paid-in capital to committed capital, and residual value to paid-in capital.

JustasS

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 but netting out carried interest is not required so that is not an error.

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

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

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Standard 7.A.21: 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.46: 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.

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.

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

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

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

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

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.