CFA Reading 4

Who benefits from GIPS compliance?

1. Investment Management Firms 2. Prospective Clients

Who can Claim Compliance with GIPS?

1. complying is voluntary 2. only investment management firms that actually manage assets 3. applied firm wide (cannot select specific products) must comply completely to disclose as complying

Which of the following statements regarding GIPS compliance is correct? A) plan sponsors and consultants that manage assets claim compliance with GIPS B) software that calculates performance in a manner consistent with the GIPS standards can claim compliance with GIPS C) investment management firms can comply with GIPS requirements by limiting their compliance claims to the standards they have chosen to follow

A

GIPS Standards

A practitioner-driven set of ethical principles that establish a standardized, industry-wide approach for investment firms to follow in calculating and presenting their historical investment results to prospective clients. The GIPS standards ensure fair representation and full disclosure of investment performance.

An investment management firm that does not adopt the GIPS standards could mischaracterize its overall performance by presenting a performance history: A) that includes terminated portfolios B) composed of a single top-performing portfolio C) for an investment mandate over all periods since the firm's inception

B

Verification of a firm's claim of compliance with the GIPS standards is performed: A) by firm personnel B) on a firm-wide basis C) to ensure the accuracy of a specific composite presentation

B

Each composite of a GIPS-complaint firm must consist of: A) multiple portfolios B) portfolios selected on an ex post basis C) portfolios managed according to a similar investment strategy

C

GIPS Verification

Firms voluntarily follow the GIPS Standards and self-regulate these standards. However, if they want to they can hire third parties to perform a verification to increase client confidence.

Survivorship bias

Presenting an "average" performance history that excludes portfolios whose poor performance was weak enough to result in termination of the firm.

Representative Accounts

Selecting a top-performing portfolio to represent the firm's overall investment results for a specific mandate.

Varying Time Periods

Showing performance for selected time periods with outstanding returns