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13 Cards in this Set

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Explain why the GIPS standards were created, what parties the GIPS standards apply to, and who is served by the standards.
1. GIPS are a set of ethical principles based on standardized, industry-wide approaches Investment firms can voluntarily follow in their presentation of historical investment results to prospective clients. These standards seek to avoid misrepresentations of performance.

GIPS apply to investment management firms and are intended to service prospective or existing clients.
Define (1) representative accounts, (2) survivorship bias, and (3) varying time periods.
1. REPRESENTATIVE ACCOUNTS - Showing a top-performing portfolio as representative of a firm's results.
2. SURVIVORSHIP BAIS - Excluding "weak performance" accounts that have been terminated.
3. VARYING TIME PERIODS - Showing performance for selected time periods with outstanding returns.
Explain the construction and purpose of composites in performance reporting.
A composite is a grouping of individual discretionary portfolios representing similar investment strategy, objective, or mandate (e.g., "Large Capitalization Growth Stocks" and "Investment Grade Domestic Bonds").

Reporting on performance of composites gives clients and prospects information about the firm's success in managing various types of securities or results for various investment styles.

A composite must include all portfolios that the firm has manage in accordance with a particular strategy.
Explain the requirements for verification of compliance with GIPS standards.
Verification is performed by a third party on a firm-wide basis. The third party verifier must attest that (1) the firm ahs complied with all GIPS requirements for composite construction on a firm-wide basis and (2) the firm's processes and procedures are established to present performance in accordance with the calculation methodology required by GIPS.
State the GIPS verification recommendations.
- Firms are encouraged to pursue independent verification.
- Verification should including the following disclosure language:

"[Insert name of firm] has been verified for the periods [insert dates] by [insert name of verifier]. A copy of the verification report is available upon request."
State the GIPS objectives.
- To obtain global acceptance of calculation and presentation standards in a firm comparable format with full disclosure
- To ensure consistent, accurate investment performance data in areas of reporting, records, marketing, and presentation
- To promote fair competition among investment management firms in all markets without unnecessary entry barriers for new firms
- To promote global "self-regulations"
Describe the key characteristics of GIPS.
- To claim compliance, an investment management firm must define its "firm."
- GIPS are ethical standards for performance presntation
- Include all actual fee-paying, discretionary portfolios in composoites for a minimum of five years or since firm or composite inception. FIrm must add annual performance each year going forward to a minimum ten years.
- Firms are required to use certain calculation and presentation standards and make specific disclosures.
- Input data must be accurate.
- GIPS contain both required and recommended provisions--firms are encouraged to adopt the recommended procedures.
- There will be no partial compliance and only full compliance can be claimed.
- Follow the local laws for cases in which a local or country-specific law or regulation conflicts with GIPS, but disclose the conflict.
- Certain "recommendations" may become "requirements" in the future
- Supplemental "private equity" and "real estate" provisions, contained in GIPS,are to be applied to those assets classes.
Describe the scope of the GIPS standards with respect to an investment firm's definition and historical performance record.
The definition of the firm for purposes of GIPS compliance must be the corporation, subsidiary, or division that is held out to clients as a business entity.

A firm must initially present a minimum of five years of compliant performance presentation for the firm and each composite unless the firm or composite has been in existence less than five years. After the initial compliant presentation, one year of compliant performance must be added each year to a requirement performance history of ten years.

Firms may present noncompliant performance periods immediately prior to the compliant performance history as long as no noncompliant performance is presented for any periods after January 1, 2000.
Explain how the GIPS standards are implemented in countries with existing standards for performance reporting and describe the appropriate response when GIPS standards are local regulations conflict.
Firms that previously presented performance in compliance with a particular Country Version of GIPS (CVG) may claim GIPS compliance for any CVG-compliant results prior to January 1, 2006.

In cases where country-specific regulations conflict with GIPS, firms must follow the applicable country-specific regulations, but must disclose the nature of conflict with GIPS.
Characterize the eight major sections of the GIPS standard.
1. Fundamentals of compliance - Definition of firm, documentation of firm policies and procedures, complying with GIPS updates, claiming compliance in the appropriate manner, appropriate verification statement

2. Input data - Consistent and comparable

3. Calculation methodology - Uniformity

4. Composite construction - Asset-weighted composites, not a simple average

5. Disclosures - Must disclosure info about presentation and the policies adopted by the firm

6. Presentation and reporting - Must be present according to GIPS.

7. Real Estate - certain provisions apply to all investments.

8. Private Equity - Must be valued according to the GIPS Private Equity Valuation Principles, unless the investment is an open-end or evergreen fund (which must follow regular GIPS)
True or False: Once a firm claims GIPS compliance, the firm has an OPTION to hire an independent third party to verify the claim of compliance.
True
State the language of the claim of compliance.
"[Insert name of firm] has prepared and presented this report in compliance with the Global Investment Performance Standards"
Name the firm fundamental responsibilities--requirements (5).
- Firms must provide a compliant presentation to all prospects
- Provide a composite list and composite description to all prospects that make a request. List discontinued composites for at least five years.
- Provide to clients requesting it, a compliant presentation and a composite description for any composite included on the firm's list
- When jointly marketing with other firms, if one of the firm claims GIPS compliance, be sure it is clearly defined as separate from noncompliant firms
- Firms are encouraged to comply with recommendations and must comply with all requirements. Be aware of updates, guidance statements, and the like.