Reading 49: Global Investment ....mance Standards－LOS l required, reporting, including, standards, Investment

tycoon

CFA Institute Area 3-5, 7, 12, 14-18: Portfolio Management
Session 18: Global Investment Performance Standards
Reading 49: Global Investment Performance Standards
LOS l: State the requirements and recommendations of the GIPS standards with respect to presentation and reporting, including the required timeframe of compliant performance records, annual returns, composite market values, and benchmarks.

tycoon

In January 2003, the Medusco Investment firm has decided to present its performance history in compliance with the Global Investment Performance Standards (GIPS). Medusco was formed on January 1, 1992, and has never before presented its performance results in compliance with the GIPS standards. Which of the following actions must Medusco take in order to claim GIPS compliance?

A) Present GIPS-compliant performance results for the 5-year period from January 1, 1998, through December 31, 2002.

B) Present GIPS-compliant performance results for the 5-year period from January 1, 1998, through December 31, 2002, and report five additional years of non-GIPS-compliant performance with a disclosure explaining why the performance in the earlier years is not GIPS-compliant.

C) Retroactively comply with GIPS for periods after January 1, 2000, and report non-GIPS-compliant performance results for the periods January 1, 1993, through December 31, 1999, with a disclosure explaining why these earlier years are not GIPS-compliant.

D) Present GIPS-compliant performance results for the 10-year period January 1, 1993, through December 31, 2002.

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Answer and Explanation

In order to claim GIPS compliance, Medusco must present at least five years of annual investment performance results that are compliant with GIPS. Medusco may, at its discretion, add an additional five years of results that are not GIPS-compliant to their five-year compliant history with a disclosure of the period of noncompliance and an explanation of why the presentation for these periods is not GIPS compliant.

tycoon

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 nine additional years of performance history (ten total) and disclose why the earlier years are not GIPS compliant.

B) 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.

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.

D) Report up to ten years of non-GIPS-compliant history and disclose why the performance presentation is not in compliance with GIPS.

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Answer and Explanation

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.

tycoon

Which of the following is NOT a Global Investment Performance Standards (GIPS) presentation and reporting requirement?

A) Performance for periods of less than one year must be annualized.

B) The composite creation date.

C) A measure of the dispersion of individual component portfolio returns around the aggregate composite return.

D) The number of portfolios and amount of assets in the composite and the percentage of the firm's total assets represented by the composite at the end of each period.

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Answer and Explanation

Standard 5.A.3 requires that performance for periods of less than one year must not be annualized.