GIPS

The section of the Global Investment Performance Standards (GIPS) that outlines defining the firm and documenting firm policies and procedures is: A) Presentation and Reporting. B) Fundamentals of Compliance. C) Disclosures.

B According to Section 0, Fundamentals of Compliance, the definition of the firm is the foundation for firm-wide compliance and creates boundaries in order to determine total firm assets.

Compliance with the CFA Institute Performance Presentation Standards (PPS) or the Global Investment Performance Standards (GIPS) is: A) the only way to comply with Standard V(B), Performance Presentation. B) the best way to comply with Standard V(B), Performance Presentation. C) required by the Code of Conduct.

B According to the Standards of Practice Handbook, complying with the PPS and GIPS is the best way to comply with Standard V(B). However, a firm is not required to be in compliance with either PPS or GIPS in order to claim compliance with Standard V(B). Compliance with the PPS or GIPS is neither required by the Code and Standards nor the SEC.

Which of the following statements most accurately describes verification under the Global Investment Performance Standards (GIPS)? GIPS verification: A) requires a verification report to be issued for the entire firm. B) is required for a firm to claim GIPS compliance. C) requires verification of individual composites.

A A single verification report is issued with respect to the entire firm; GIPS verification cannot be carried out for a single composite.

Viroqua DeSoto, CFA, is reading a discussion in an online forum about the construction and purpose of composites in performance reporting. She finds these statements from participants: Statement 1: The purpose of composites is to let investors know how well a firm has performed managing different types of securities or investment strategies. Statement 2: A managed portfolio should have a performance history of at least one year before the firm assigns it to a composite. With respect to both statements: A) only one is correct. B) both are correct. C) both are incorrect.

A DeSoto should agree with Statement 1 but disagree with Statement 2. Reporting on the performance of composites gives clients and prospects information about the firm's success in managing various types of securities or investment styles. The firm should identify which composite each managed portfolio will be included in before the portfolio's performance is known, to prevent the firm from including portfolios selectively and artificially creating composites with superior returns.

Which of the following is NOT an objective of the Global Investment Performance Standards (GIPS)? A) To obtain worldwide recognition by securities regulators of a standard for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure. B) To encourage self-regulation. C) To encourage full disclosure and fair global competition without barriers to entry.

A GIPS applies to investment management firms and is intended to serve the existing and prospective clients of investment management firms, not regulators.

Jones, Inc., is attempting to qualify for Global Investment Performance Standards (GIPS) compliance. Regarding mandatory disclosures, which of the following disclosures will be insufficient and thus prevent Jones, Inc., from claiming compliance? A) Jones discloses all firm assets under active management each period. B) Jones' definition of the firm is that they are a brokerage/portfolio management firm registered with the Securities and Exchange Commission (SEC). C) Jones discloses all non-fee paying portfolios that are included in composites and notes the percentage of composite assets that are non-fee paying portfolios.

A Jones must disclose total firm assets each period, not assets under active management. The definition of the firm, the disclosure of the firm's composites, and the disclosure regarding non-fee paying portfolios are all appropriate.

A good way to describe the Global Investment Performance Standards (GIPS) is a: A) common yardstick for means of comparison. B) screening mechanism for determining appropriate international investments. C) legal doctrine with criminal penalties.

A Just like the Presentation Performance Standards (PPS), the GIPS serve as a yardstick so the performance of one individual or firm can be properly compared to that of another.

Which of the following is NOT an important characteristic of how a firm defines itself? The firm definition establishes the: A) entity to which local securities laws apply when they exceed the GIPS requirements. B) boundaries for what is included when measuring the total firm's assets. C) set of portfolios that must be included in at least one of a firm's composites.

A When a firm claims compliance with GIPS, it must be compliant on a firm-wide basis. The definition of the "firm" under the GIPS standards establishes the boundaries for what constitutes firm assets, and the set of portfolios that must be included in at least one composite.

Which of the following is NOT a key characteristic of the Global Investment Performance Standards (GIPS)? GIPS: A) require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites defined according to similar strategy and/or investment objective. B) require firms to use certain calculation and presentation methods and to make certain disclosures along with the performance record. C) do not address every aspect of performance measurement, valuation, attribution, or coverage of all assets.

A The GIPS do not require managers to include non-fee-paying accounts in composites (Standard 3.A.1).

Within the Global Investment Performance Standards (GIPS) are supplemental provisions which must be applied to which of the following asset classes? A) Private equity and real estate. B) Emerging markets and private equity. C) Alternative investments and derivatives.

A The GIPS standards do not address performance measurement or coverage of all asset classes, but sections 6, 7 and 8 are supplemental provisions which must be specifically applied to private equity, real estate, and wrap fee/separately managed account (SMA) portfolios.

Which of the following statements is a key characteristic of Global Investment Performance Standards (GIPS)? A) GIPS exist as a minimum worldwide standard where local or country-specific law, regulation, or industry standards may not exist for investment performance measurement and/or presentation. B) GIPS require firms to show GIPS-compliant history for a minimum of ten years, or since inception of the firm or composite if in existence less than ten years. C) GIPS require managers to include all actual fee-paying and non-fee-paying discretionary portfolios in composites defined according to similar strategy and/or investment objective.

A The GIPS standards: (1) do not require managers to include non-fee-paying accounts in composites, (2) require five years of GIPS compliant history, and (3) require compliance with local laws when they conflict with GIPS and disclosure of the conflict.

In 1995, the CFA Institute sponsored and funded the Global Investment Performance Standards (GIPS) in response to: A) a need to address issues, such as portability of investment results. B) an increase in insider trading. C) both of the reasons listed here.

A The GIPS were created to address the portability of investment results, varying time periods, and survivorship biases. Insider trading was not an issue.

The Global Investment Performance Standards (GIPS) were designed to apply primarily to which of the following groups? A) Investment management firms located worldwide that seek to comprehensively and accurately present historical investment performance. B) Investment management firms located in countries without locally accepted investment standards already in place. C) Investment firms located in the 21 countries that have contributed significantly to promoting and developing the GIPS.

A The GIPS were designed to become "the" worldwide standard for all investment firms seeking to present historical investment performance.

The Investment Performance Council (IPC) is composed of 36 members from 15 countries and serves as the global committee responsible for the Global Investment Performance Standards (GIPS). The principal goal of the IPC is to have: A) all countries worldwide adopt the GIPS standards as the standard for investment firms presenting historical performance. B) all countries with developed financial markets adopt the GIPS standards as the standard for investment firms presenting historical performance and become members of the IPC. C) all firms in the IPC-represented countries adopt the GIPS standards as the standard for investment firms presenting historical performance.

A The IPC envisions the GIPS compliance as a "passport" that allows firms to enter the investment arena, which will level the playing field on a global basis.

Which of the following statements regarding GIPS is least accurate? A) To stay GIPS compliant, a firm must abide by GIPS guidelines even when conflicting with local or country-specific regulations. B) A GIPS objective is to promote global "self-regulation." C) GIPS allows clients to have more confidence in reported performance.

A To stay GIPS compliant, firms are required to comply with local laws even if they conflict with GIPS. However, the discrepancy must be disclosed.

Longhorn Investments prepares its performance presentations in accordance with Global Investment Performance Standards (GIPS). As part of its employee benefits package, Longhorn does not charge a fee to its employees for managing their portfolios. When calculating total firm assets for the purpose of GIPS compliance, Longhorn should: A) include these employee portfolios. B) only include those employee portfolios that are in discretionary accounts. C) not include these employee portfolios because they are in non-fee-paying accounts.

A When calculating the firm's total assets for a GIPS-compliant presentation, the market value of all discretionary and non-discretionary assets should be included, regardless of whether the account is fee-paying or not.

When verifying a firm's compliance with Global Performance Investment Standards (GIPS), the verifier must: A) disclose whether the verification was performed by the firm's internal auditors or a third party. B) attest that the firm's processes and procedures are established to present performance in accordance with GIPS requirements. C) clearly identify the composites for which verification has been performed.

B The verifier must attest that the firm has complied with all GIPS requirements for composite construction on a firm-wide basis and that the firm's processes and procedures are established to present performance in accordance with the calculation methodology, data, and format requirements of GIPS. Verification is not a GIPS requirement. If performed, verification applies to the firm as a whole, not to individual composites, and must be performed by an independent third party, not the firm

All of the following are titles of one of the nine sections of the Global Investment Performance Standards (GIPS) EXCEPT: A) Real Estate. B) Implementation. C) Input Data.

B "Implementation" is not a name of one of the nine major sections of the GIPS standards.

Advisors, Inc., is in the process of adopting the Global Investment Performance Standards (GIPS). The managers of the firm are combining the results of fee-paying discretionary portfolios into composites for reporting purposes. For purpose of comparison, each fee-paying discretionary portfolio must be included in at least: A) two composites. B) one composite. C) three composites.

B A composite is a group of portfolios with similar investment strategies and objectives. The grouping is done so a comparison can be done between the portfolios in each composite. A portfolio must be included in at least one composite for compliance with the GIPS.

Which of the following was NOT a motivation for creating the Global Investment Performance Standards (GIPS)? A) Achieve greater uniformity and comparability among presentations of performance. B) Increase the role of government agencies in the investment industry. C) Improve the service offered to investment management clients.

B All of these were motivations for creating GIPS except to increase the role of government. In fact, these standards have been created to bolster the notion of self-regulation and reduce the encroachment of government into the investment industry.

According to the Global Investment Performance Standards (GIPS), where existing laws or regulations already impose performance presentation standards, firms: A) that comply with local requirements will be in compliance with GIPS as long as the scope and nature of the conflict is fully disclosed. B) are strongly encouraged to comply with the GIPS standards in addition to those local requirements. C) must comply with the GIPS standards, because they are the globally accepted standards for the investment industry.

B Firms are encouraged, though not required, to comply with both GIPS and the local requirements, and also disclose any local laws and regulations that conflict with the GIPS standard. Note that this question is not asking about local laws that are in conflict with GIPS, but simply about local laws that exist.

Which of the following statements regarding the Global Investment Performance Standards (GIPS) is CORRECT? The GIPS standards: A) are considered to be the minimum global standard for historical performance presentation. B) represent the highest performance measurement and presentation practice worldwide. C) are designed to supplement local standards of historical performance presentation in countries around the world.

B GIPS are envisioned as being "the" standard worldwide, and would eliminate the need for separate local standards. The CVG approach is currently utilized, but the goal is to converge all standards globally and eliminate the need for CVGs.

Which of the following statements least accurately describes a key characteristic of the Global Investment Performance Standards (GIPS)? A) All fee-paying, discretionary portfolios must be included in at least one composite. B) A firm may not claim compliance with GIPS until it has recorded at least five years of GIPS-compliant performance data. C) The distinct business entity that is claiming compliance with GIPS must be defined.

B If a firm has been in existence less than five years, it can claim GIPS compliance if it presents GIPS-compliant performance data since the firm's inception. The other statements are accurate.

Which of the following statements most accurately describes why the Global Investment Performance Standards (GIPS) were created? To: A) meet the need for a single globally accepted set of regulatory guidelines among developed securities markets. B) meet the need for a single globally accepted set of investment performance presentation standards. C) provide comparability of performance results among nations for which no presentation guidelines currently exist.

B Recognizing the need for one globally accepted set of investment performance presentation standards, CFA Institute sponsored and funded the Global Investment Performance Standards Committee to develop and publish a single global standard by which all firms in all countries calculate and present performance to clients and prospective clients.

Which of the following is least likely to be a requirement for a firm claiming compliance with Global Investment Performance Standards (GIPS)? A) List discontinued composites for at least five years. B) Provide a compliant presentation only to prospects who request one. C) When jointly marketing with a noncompliant firm, make sure the compliant firm is clearly defined as separate from the noncompliant firm.

B To comply with GIPS, a firm must provide a compliant presentation to all prospects. For all prospects who request them, the firm must also provide a composite list and composite description, and a compliant presentation and composite description for any composite included in the firm's list.

The El Rey Investment Company, located in Barcelona, Spain, is in the process of adopting the Global Investment Performance Standards (GIPS) for the current fiscal year. One of the GIPS standards is in direct conflict with Spanish investment reporting regulations. In order to be in full compliance with GIPS, El Rey must: A) comply with the GIPS standard and make full disclosure of the conflict. B) choose either the GIPS standard or the local regulation, whichever is the more conservative approach, and make full disclosure of the conflict. C) comply with the local regulation and make full disclosure of the conflict.

C A GIPS requirement is that firms comply with the local law and make full disclosure of the conflict.

The provisions for each section of the Global Investment Performance Standards (GIPS) are divided between: A) minimum standards and recommendations. B) fee-paying and non fee-paying portfolios. C) requirements and recommendations.

C Firms must meet all requirements in order to claim compliance with the GIPS standards, and are encouraged to adopt and implement the recommendations.

Which of the following statements regarding Global Investment Performance Standards (GIPS) is most accurate? A) GIPS exists as a best or maximum worldwide standard where local or country specific law for investment performance measurement does not exist. B) GIPS is intended to foster the notion of a world-wide regulatory body to oversee investment performance and measurement on a global scale. C) GIPS requires that all fee-paying discretionary portfolios be included in composites defined according to investment objective or similar strategy and firms must show GIPS compliant history for a minimum of five years or since inception if a composite has existed less than five years.

C GIPS provides a minimum, not a maximum, standard for investment performance measurement and/or presentation. GIPS requires that all fee-paying discretionary portfolios be included in a composite, not rank ordered, to prevent firms from presenting the results of their best portfolios. GIPS is intended to foster the notion of self-regulation, not a world-wide regulatory body, to oversee investment performance and measurement.

With respect to reporting investment results, Global Investment Performance Standards (GIPS) require a minimum of: A) ten years of historical performance. B) three years of historical performance. C) five years of historical performance.

C GIPS require a minimum of five years of conforming historical performance results.

Assume that on January 1, 2005, a firm with no Global Investment Performance Standards (GIPS) compliant history since its inception four years ago wishes to claim compliance with GIPS. Which of the following accurately reflects the appropriate action for the firm to take? A) Comply with GIPS for the year beginning January 1, 2002, and report its performance prior to this date with a disclosure of why the earlier years are not GIPS compliant. B) Nothing, a firm must have five years of compliant performance history to claim compliance with GIPS. C) Comply with GIPS for all four periods since the firm's inception.

C In order to claim GIPS compliance, a firm must present at least five years of annual investment performance that is compliant with GIPS. If a firm or composite is less than five years old, the performance since the inception of the firm or composite must be presented.

Assume that on January 1, 2005, a 15-year old firm with no Global Investment Performance Standards (GIPS) compliant performance history wishes to claim compliance with the GIPS standards. Which of the following accurately reflects the appropriate action for the firm to take? A) Comply with GIPS for the year beginning January 1, 2004, and report four additional years of performance history (five total) and disclose why the earlier years are not GIPS compliant. B) Comply with GIPS for the year beginning January 1, 2004, and report nine additional years of performance history (ten total) and disclose why the earlier years are not GIPS compliant. C) Comply with the GIPS standards for the 5-year period January 1, 2000, through December 31, 2004, and report five additional years of non-GIPS-compliant performance and disclosure of why the performance in the earlier years is not GIPS compliant.

C In order to claim GIPS compliance, a firm must present at least five years of annual investment performance that is compliant with GIPS. If a firm or composite is less than five years old, the performance since the inception of the firm or composite must be presented. A firm may link a non-GIPS-compliant performance record to their 5-year compliant history as long as only GIPS-compliant performance is presented for periods after January 1, 2000, and the firm discloses the periods of non-compliance with an explanation of why the presentation is not GIPS compliant (Standard 4.A.15 and 5.A.1.a).

The Global Investment Performance Standards (GIPS) were designed to be applied with the goal of full disclosure and fair representation of investment performance in all instances EXCEPT: A) when a composite includes nondiscretionary funds to which the GIPS are not applicable. B) when a firm or composite has been in existence for less than five years, in which case, less stringent standards apply. C) when applicable local laws or regulations conflict with the GIPS, in which case, firms must comply with local laws and fully disclose the conflict.

C In the case of a conflict, GIPS require that firms comply with local or country-specific laws or regulations rather than GIPS, but must fully disclose the nature and scope of the conflict.

Which of the following statements regarding CFA Institute Global Investment Performance Standards (GIPS) is CORRECT? A firm that employs members of CFA Institute: A) must choose to comply with either the Performance Presentation Standards (PPS) or GIPS. B) must comply with the GIPS only within the United States. C) is not required to conform to the GIPS.

C No firm is required to comply with either PPS or GIPS. These are CFA Institute guidelines, and a firm can choose to conform to one or both.

McGregor Investment Management promotes itself as a fixed-income investment management firm. The vast majority of the portfolios it manages are fixed-income portfolios. McGregor does, however, manage a few portfolios, utilizing a growth equity investment strategy, but the firm has no intention of ever promoting this strategy. Under the Global Investment Performance Standards (GIPS), must these portfolios be included in a composite? A) No, because the firm does not normally manage portfolios to a growth equity strategy and is not planning to promote it. B) Yes, because the portfolios are managed to a widely recognized investment strategy. C) Yes, because the portfolios are discretionary and fee paying.

C The GIPS Standards require that all actual fee-paying discretionary portfolios are included in at least one composite. It does not matter if the firm ever plans to promote the particular strategy to which a portfolio is being managed, if the portfolio is fee-paying and discretionary, it must be included in at least one composite. Thus, McGregor must include the growth equity portfolios in at least one of its composites.

Which of the following best describes the underlying principles upon which the Global Investment Performance Standards (GIPS) are based? A) Fair and consistent application of a global set of regulatory requirements. B) Uniformity and consistent application of standards for the global regulation of the securities industry. C) Full disclosure and fair representation of performance results.

C The GIPS standards are a set of voluntary standards based on the fundamental principles of full disclosure and fair representation of performance results.

The nine major sections of the Global Investment Performance Standards (GIPS) least likely include: A) required disclosures. B) input data requirements. C) verification procedures.

C The nine major sections of GIPS are: 0) Fundamentals of compliance; 1) Input data; 2) Calculation methodology; 3) Composite construction; 4) Disclosures; 5) Presentation and reporting; 6) Real estate; 7) Private equity; 8) Wrap fee/Separately Managed Account (SMA) portfolios.

As countries adopt the Global Investment Performance Standards (GIPS), which of the following is least likely to occur? A) Existing and potential clients will be able to make fair and unambiguous comparisons among investment firms. B) Competition in the global investment industry will be enhanced. C) The trend toward cross border investments will decline.

C There is no reason to expect the level of international investing to decline as a result of the adoption of a global set of performance standards. If anything, international investing will become more attractive as the credibility of reported performance results improves.