Professional Conduct Program Process
AMC Risk Management / Compliance / Support MUST haves
M A P M E E E
GIPS vs Standards Differences
Other fundamentals of GIPS compliance
GIPS: The Firm and Discretion
GIPS: Portability of Performance (eg if acquiring a firm)
1) MEMORIZE THE FOUR FROM THE PHOTO BELOW,
2) NOTE: you have one year to connect/link performance if you mess up GIPS compliance or don’t have it right away at acquisition
–> so you CAN continue to claim GIPS compliance for a year even if you haven’t proven anything yet / the acquired assets are not yet in compliance
GIPS Objectives
GIPS Composites
Modified Dietz
approximate way to measure returns, adjusting for large external cash flows (ECF)
Example (calc in photo):
Day 1 value = $100
Day 7 = contribution of $2 (value is now 112)
Day 28 value = $117.6
Time-weighted Return Calc
Example (calc in photo):
Day 1 value = $100
Day 7 = contribution of $2 (value is now 112)
Day 28 value = $117.6
GIPS Fair Value Valuation Hierarchy
See photo below
NOTE: appraisals (RE and PE) are not ideal because they don’t equal FV –> try to get a better comparable
Composites characteristics / must haves
photo below, PLUS:
- composites must include new portfolios on a timely and consistent composite-specific basis after each portfolio comes under management
- composites must include only those portfolios that are managed for the full performance measurement period for which the composite return is calculated
- terminated portfolios must be included in the historical performance of the composite up to the last full period that each portfolio was under mgmt, and for which the firm has discretion
- portfolios must not be moved from one composite to another uneless documented client-directed changes to a port invmt mandate, objective, or strategy (NOT tactical changes), or redefinition of the composite make it appropriate –> historical performance of the portfolio must remain with the original composite in this scenario
- if there are significant cash flows (ie big enough to impede the firm from timely implementation of the strategy), temporarily exclude portfolio from composite or create and report on a temporary new account taht contains cash until it can be invested or securities until they can be divested
- 3 ways to measure:
1) return from each portfolio, using weighted avg using bgn of period portfolio values or;
2) return from each portfolio using wtd avg of portfolio returns plus external cas flows weighted like in denominator of Mod Dietz
OR
3) aggregate return method –> treat composite assets and ECF as relating to a single portfolio, then compute the Mod Dietz for this “mega portfolio”
Internal Dispersion
what you need in order to use time weighted returns in a composite
Verification
See photo
NOTE:
Verification = for the FIRM
performance examination = for the COMPOSITE
CAN’T VERIFY ONLY A COMPOSITE OR ONLY PART OF A FIRM
