Ethics/GIPS question

[SadCFAWannabe]

Page 62 of Schweser Book I, bottom of the page:

'There are to be no statements referring to calculation methodologies used in a composite presentation as "in accordance with GIPS" or the like.

'Similarly, there should be no such statements referring to the performance of an individual, existing client as being "calculated in accordance with GIPS" or the like, unless a compliant firm is reporting results directly to the client.

My questions:

(1) What exactly is a "composite" presentation? Does this mean a presentation to many clients?

(2) I find it a bit weird that one can't make statements that performance calculations are made in compliances with GIPS if this is in fact the truth. What's the motivation behind this restriction?

 

[hiredguns1]

Give this a read.

http://www.investopedia.com/terms/c/composite.asp

The main point is that the entire firm must be in compliance with GIPS, not just certain portfolios or selective calculations. Revisit the manual:

http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2005.n5.4002

Select excerpt:

0.A Claim of Compliance � Requirements

0.A.7 Once a FIRM has met all the REQUIRED elements of the GIPS standards, the
FIRM MUST use the following compliance statement to indicate that the FIRM
is in compliance with the GIPS standards:

�[Insert name of FIRM] has prepared and presented this report in compliance
with the Global Investment Performance Standards (GIPS�).�

0.A.8 If the FIRM does not meet all the REQUIREMENTS of the GIPS standards, the
FIRM cannot represent that it is �in compliance with the Global Investment
Performance Standards except for...�.

0.A.9 Statements referring to the calculation methodology used in a COMPOSITE
presentation as being �in accordance [or compliance] with the Global
Investment Performance Standards� are prohibited.

0.A.10 Statements referring to the performance of a single, existing client as being
�calculated in accordance with the Global Investment Performance
Standards� are prohibited except when a GIPS-compliant FIRM reports the
performance of an individual account to the existing client."

edit: formatting.



Edited 1 time(s). Last edit at Wednesday, October 17, 2007 at 05:30PM by hiredguns1.

 

[finfan]

Please correct me if I am wrong:

1. Composite presentation is a presentation of all the portfolios in a Firm which serves a specific Investment objective. The selection of the nature of the portfolio to make a composite is predetermined. The main purpose is to eliminate from presenting only the best performing portfolios. The presentation is meant for multiple clients and suitable for any investor/client who comes with this specific investment objective.

2. Once a Firm is in compliance with the GIPS, the GIPS Standards applies to all the calculation methodologies & all the Performance Presentations across the Firm and hence, does not require to be stated separately.

 

[maratikus]

GIPS compliance is only applicable when ALL requirements are met. Therefore, it's meaningless to state that a certain calculation is performed in accordance with GIPS. It's the same as putting on your resume that you passed Portfolio Management section of CFA Level I.