GIPS: carve-out & Fees

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Pauluss

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Dears,
1st I have to say that I really like GIPS…so well written, I should order a hard copy and put it next to my bed!
Two questions:
- How would you explain “Carve-out” for dummies? The more I read this point, the less I understand exactly what is meant.
- Where are the guidances for fees reporting? Is there a summary somewhere or it’s depending of the category? (e.g. PE must report gross & net of fees returns)
Really appreciate your help!
Good luck to all (but not too much of you hein, I still need to pass ;-))
 
Use the search function. There were many threads about these two questions.
 
I did it before posting but still do not get it…
 
For carve out:
http://www.analystforum.com/phorums/read.php?13,1247750,1247774
http://www.analystforum.com/phorums/read.php?13,1248180,1248420
http://www.analystforum.com/phorums/read.php?13,1243829,1243878
Posted by: janakisri (IP Logged)
Date: April 17, 2011 05:24PM
I’ll try and create an example:
There is an SMA account owned by an Insurance company . The account has funds in two portfolios , first is a balanced composite with 60% equities , 30% bonds and 10% cash equivalents. Second is pure equities mandate ( 100% large cap growth)
Balanced equities portion also managed thru same strategy as the pure mandate.
Since the owner is the same if cash is diverted from First to second, for purpose of availing a rebalance cycle or if the equities part is maxed out in the balanced , then a composite consisting of the equities part of balanced ( carve-out)and the pure mandate is NOT allowed by GIPS.
Cash is being shared or commingled , and the GIPS doesn’t allow it if the component portfolio ( or carve-out) does not separately manage its cash
For Fees:
http://www.analystforum.com/phorums/read.php?13,1264884,1265228
Posted by: smokin’hot (IP Logged)
Date: May 30, 2011 12:18AM
AMC- disclose both- REQUIRED
GIPS- you can present either, but gross is RECOMMENDED
GIPS, P/E: net of fees and gross of fees SI-IRR
Wrap Fees/SMA- must present returns after deduction of all BUNDLED FEES (this makes sense if you think about it)
 
A carve out is simply when you have a portfolio under management that includes components that can be allocated to composites.
Eg you are managing a life insurance funds assets and allocate the low risk fixed income component of their total portfolio to a conservative fixed income composite. Previously you could only do this if you allocated cash, now you can only do this if it is separately managed with it’s own cash balance.
My take on this is allocating returns from a wider portfolio is unrepresentative as it will be formed with asset integration in mind (ie part of a wider portfolio) - results would not be representative of what would be achieved if you managed those assets on a segmented basis (which is what the separately managed with own cash balance is trying to get at).
Hope this helps
 
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