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

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

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.

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.

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.

cross-ied

When performing the return calculations for real estate, which of the following best describes capital employed under the GIPS real estate provision?

A) Beginning of period capital.

B) Beginning of period capital adjusted by time-weighted cash flows.

C) Beginning of period, end of period or a time-weighted average capital may be used, provided it is applied consistently and fully disclosed.

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All return calculations must use beginning capital adjusted for time-weighted cash flows during the period.

cross-ied

The calculation of capital return under the GIPS provisions for real estate is performed by dividing a measure of return by capital employed. Beginning with the change in value of the real estate (and cash), how would the calculation of return account for capital expenditures, nonrecoverable expenses, and sales proceeds?

Capital Expenditures

Nonrecoverable Expenses

Sales Proceeds

A) Subtract No adjustment Add

B) Add No adjustment Subtract

C) Subtract Subtract Add

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Capital return is calculated by dividing a return measure by capital employed. The return measure equals the change in value during the period (i.e. ending market value less beginning market value) minus capital expenditures plus sales proceeds. Nonrecoverable expenses would be deducted from income return.

cross-ied

A portfolio consists of three approximately equal investments: some retail property, a large commercial loan and some common stock in a construction company. Which of the following best describes how the GIPS provisions would be applied?

A) The carve-out provisions would apply; with the retail property and the loan using the real estate GIPS provisions, and common stock using the general GIPS provisions.

B) The carve-out provisions would apply; with the retail property using the real estate GIPS provisions, and the loan and common stock using the general GIPS provisions.

C) Since only part of the portfolio is comprised of real estate investment, the general provisions of the GIPS would apply to the entire portfolio.

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With this mixed portfolio, the carve-out provisions apply. Note that only the retail property falls under the real estate GIPS provisions.

cross-ied

Which of the following investments is most likely to be covered by the real estate provisions of the GIPS?

A) A commercial mortgage-backed security on a new office block.

B) A commingled investment in a group of residential properties.

C) A real estate investment trust.

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The general provisions of the GIPS would apply to REITs, any common stock, CMBSs and many private debt investments. The residential properties are the only investment listed that would fall under the real estate provisions.

cross-ied

A composite contains portfolios A, B, C and D that had returns during the year of 3.8 percent, -4.6 percent, 16.1 percent and 7.4 percent respectively. Which of the following statements best describes the provisions of GIPS with respect to measures of dispersion?

A) The standard deviation is the most appropriate measure, but the firm should disclose whether the denominator in the calculation is the number of portfolios or the number of portfolios minus one.

B) No measure of dispersion needs to be presented.

C) The standard deviation should be shown using either equal weightings or asset weightings.

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No measures of dispersion need to be shown since the composite contains fewer than six portfolios.