GIPS (simple questions)

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tigas cfix

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Hi Brave Ones,
Just 2 simple questions around GIPS… thought I had understood both right but now I need your inputs.
1) If fund inception was more than 10 years ago (but after 1/Jan/2000), then the firm is required to present a performance record of 10 years?
2) If fund inception was, let’s say 7 years ago (but after 1/Jan/2000), then the firm is required to present a performance record of 7 years?
3) I thought that a minimum of 5 compliant years, and then add up until 10 years. Is it possible for a fund with inception at 2003 but the firm only show performance of 2006,07,08,09,10,11?
3) just read in one answer that the presentation of composite net-of-fees returns is required? I thought firms could opt to present either gross or net, given that they clearly identify it (even that they are recommended to present gross).
—
4) just read in one answer that a covered call provides some downside protection…are they referring to the call option premium received that offsets some of the possible losses of the underlying?
Many thanks one again to ALL of you AFers
best of luck,
 
On Q1, you have to qualify the answer a bit. Are the presentations available GIPS compliant or no? If you have 10 years or more at least of compliant history , they have to show 10 years.
Again on Q2 , ditto. If less compliant is available then as many compliant years as available . Once compliant , they cannot uncompliant themselves. But once they started getting compliant they cannot then show less than since-inception-and-also-compliant history.
On Q3 , certainly , if they became compliant only in 2006 , then show 2007-‘11
Gross preferred but net accepted. Disclose which one.
Q4 , the answer is obvious , why else would you take the risk of writing an option ? To cover some of the loss on your underlying position
 
On Sri’s comment above: On Q3 , certainly , if they became compliant only in 2006 , then show 2007-‘11
Per tigas - Is it possible for a fund with inception at 2003 …
There are various things at play here…
  • At least five years of performance (or for the period since the FIRM’S inception or the COMPOSITE INCEPTION DATE if the FIRM or the COMPOSITE has been in existence less than five years) that meets the REQUIREMENTS of the GIPS standards.
[If this is for a particular composite - and that composite’s inception is 2006 - then yes.]
If they are showing GIPS compliant presentation for the firm - then they need to show from 2003 onwards - no choice about that. and given the firm’s inception was after 2000 - they cannot show some years that are non-GIPS compliant - can they?
 
I will try to put it more clear, hopefully:
1) If fund inception was more than 10 years ago (but after 1/Jan/2000), then the firm is required to present a performance record of 10 years?
What I am asking is if the firm wants to claim compliance with GIPS (imagine they have only this fund), then it needs to show the 10 yrs?
If you answer yes, then can I assume that any firm, to claim compliance, will have to go always to the inception of the fund, no matter it started in 2000, 2003, 2009,…?
2) On Q3 , certainly , if they became compliant only in 2006 , then show 2007-‘11
Maybe I am mixing concepts but if the fund inception was in 2003, and in 2006 they decide to claim compliance, can they not present the 2003-2005 years and only present 2007-2011?
So CP says that they will have to go back to 2003 but janakisri says that they can start in 2006.
This was exactly what I tried to ask initially (sorry guys for any non-clear part)
 
Actually , now that I think about it , I don’t really understand it very well. In my mind , the words mean that you cannot “link” returns that are not created strictly according to GIPs standards ( applicable at that time? ) . That probably does not mean that you can get away with not showing the performance at all. In other words , if you are not compliant don’t geometrically link the return and then create a linked return number , but cannot avoid showing it for whatever it was .
In other words link 2007 to 2011 and create a number for overall. Also show the 2003 to 2006 separately unlinked to anything.
What do you guys think?
 
Sorry my bad mistake on this point. You can link 2000 prior non-compliant period results . But after 2000 you cannot link it. and since we are way past 2000 now , the firm has to present only compliant history ( since firm inception and since composite inception , the later one ).
So 2003-2006 not allowed if they were not compliant for those years. Cannot show/present 2003-2006. They can say that the firm began in 2003 , that the compiste inception date was 2003 , but they can only show 2007 on because they became compliant 2006
from the PDF: ( http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2010.n5.1 )

• A firm is required to initially present, at a minimum, five years of annual investment
performance that is compliant with the GIPS standards. If the firm or the composite has
been in existence less than five years, the firm must present performance since the firm’s
inception or the composite inception date.
• After a firm presents a minimum of five years of GIPS-compliant performance (or for
the period since the firm’s inception or the composite inception date if the firm or the
composite has been in existence less than five years), the firm must present an
additional year of performance each year, building up to a minimum of 10 years of
GIPS-compliant performance.
• Firms may link non-GIPS-compliant performance to their GIPS-compliant performance
provided that only GIPS-compliant performance is presented for periods after 1 January
2000 and the firm discloses the periods of non-compliance. Firms must not link non-
GIPS-compliant performance for periods beginning on or after 1 January 2000 to their
GIPS-compliant performance. Firms that manage private equity, real estate, and/or wrap
fee/separately managed account (SMA) portfolios must also comply with Sections 6, 7,
and 8, respectively, of Chapter I that became effective as of 1 January 2006.
 
In the first year of GIPS compliance, the firm usually should provide at least 5 years of performance records. If the firm or the composite was created less than 5 years ago, all the performance records should be provided.
10-year requirements are for the firms that have been in compliance for a while(at least 5 years). Of course, the firm can always present more than 5 years of records in its first year of compliance.
In an extreme case, the firm presented 10 years of records in its first year of compliance. It can not change its mind in later, and presents only 6 years of records in the second year.
 
starting to get a bit more clear…I also mixed the firm compliance and a firm’s composite compliance… even though I like GIPS :)
thank you all
 
janakisri wrote:
On Q1, you have to qualify the answer a bit. Are the presentations available GIPS compliant or no? If you have 10 years or more at least of compliant history , they have to show 10 years.
Again on Q2 , ditto. If less compliant is available then as many compliant years as available . Once compliant , they cannot uncompliant themselves. But once they started getting compliant they cannot then show less than since-inception-and-also-compliant history.
On Q3 , certainly , if they became compliant only in 2006 , then show 2007-‘11
Gross preferred but net accepted. Disclose which one.
Q4 , the answer is obvious , why else would you take the risk of writing an option ? To cover some of the loss on your underlying position
Click to expand...
Janakisri et al,
Q4 not so obvious.
Just finished CFAI Mock 2012 and Q43 says “covered calls do NOT provide downside protection”…
so one more to mix things up… some providers say it provides protection with premium earned and CFAI says no protection whatsoever, that was precisely my idea before I saw another point of view during other exams…
 
I don’t know why. I can only read GIPS questions in multiple choice format. I want to keep them in memory for 3 more days. I only vaguely remember I posted for this q.
 
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