STUDY SESSION 18 GLOBAL INVESTMENT PERFORMANCE STANDARDS

STUDY SESSION 18

GLOBAL INVESTMENT PERFORMANCE STANDARDS

The Global Investment Performance Standards (GIPS) contain ethical and

professional standards for presenting investment performance to prospective

clients. These guidelines provide for standardized performance calculation and

presentation across investment managers, enabling investors to objectively compare

manager return histories and clearly evaluate performance. This study session

consists of a single reading which provides grounding in the requirements of GIPS.

LEARNING OUTCOMES

Reading 49: Global Investment Performance Standards

The candidate should be able to:

a. summarize the reasons for the creation of the GIPS standards, the Standards

evolution, and their benefits to prospective clients and investment managers;

b. formulate the objectives, key characteristics, and scope of the GIPS standards;

c. explain the fundamentals of compliance with the GIPS standards, including the

definition of the firm, the conditions under which an investment management firm

can claim compliance, and the correct wording of the GIPS compliance statement;

d. state the requirements and recommendations of the GIPS standards with respect

to input data, including accounting policies related to asset valuation and

performance measurement;

e. summarize and justify the requirements of the GIPS standards with respect to

return calculation methodologies, including the treatment of large external cash

flows, cash and cash equivalents, and fees and expenses;

f. state the requirements and recommendations of the GIPS standards with

respect to composite return calculations, including methods for asset-weighting

portfolio returns;

g. explain the meaning of discretionary in the context of composite construction

and, given a description of the relevant facts, determine whether a portfolio is

likely to be considered discretionary;

h. explain the role of investment mandates, objectives, or strategies in the

construction of composites;

i. state the requirements and recommendations of the GIPS standards with respect

to composite construction, including switching portfolios among composites, the

timing of the inclusion of new portfolios in composites, and of the exclusion of

terminated portfolios from composites;

j. state the requirements and recommendations of the GIPS standards for asset

class segments carved out of multi-class portfolios;

k. state the requirements and recommendations of the GIPS standards with respect

to disclosures, including fees; the use of leverage and derivatives; conformity

with local laws and regulations that conflict with the GIPS standards; and

non-compliant performance records;

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;

m. explain the conditions under which the performance record of a past firm or

affiliation must be linked to or used to represent the historical record of a new

firm or affiliation;

n. evaluate the relative merits of high/low, interquartile range, and standard

deviation as measures of the dispersion of portfolio returns within a composite;

o. identify the types of investments that are subject to the GIPS standards for real

estate and private equity;

p. state and explain the provisions of the GIPS standards for real estate, and