STUDY SESSION 18 GLOBAL INVESTMENT PERFORMANCE STANDARDS

STUDY SESSION 18

GLOBAL INVESTMENT PERFORMANCE STANDARDS


The Global Investment Performance Standards (GIPS®) contain ethical and
professional standards for presenting investment performance to prospective
clients. These guidelines provide for standardized performance calculation and
presentation across investment managers, enabling investors to objectively compare
manager return histories and clearly evaluate performance. This study session
consists of a single reading which provides grounding in the requirements of GIPS.

LEARNING OUTCOMES


Reading 49: Global Investment Performance Standards

The candidate should be able to:

a. summarize the reasons for the creation of the GIPS standards, the Standards’
evolution, and their benefits to prospective clients and investment managers;

b. formulate the objectives, key characteristics, and scope of the GIPS standards;

c. explain the fundamentals of compliance with the GIPS standards, including the
definition of the firm, the conditions under which an investment management firm
can claim compliance, and the correct wording of the GIPS compliance statement;

d. state the requirements and recommendations of the GIPS standards with respect
to input data, including accounting policies related to asset valuation and
performance measurement;

e. summarize and justify the requirements of the GIPS standards with respect to
return calculation methodologies, including the treatment of large external cash
flows, cash and cash equivalents, and fees and expenses;

f. state the requirements and recommendations of the GIPS standards with
respect to composite return calculations, including methods for asset-weighting
portfolio returns;

g. explain the meaning of “discretionary” in the context of composite construction
and, given a description of the relevant facts, determine whether a portfolio is
likely to be considered discretionary;

h. explain the role of investment mandates, objectives, or strategies in the
construction of composites;

i. state the requirements and recommendations of the GIPS standards with respect
to composite construction, including switching portfolios among composites, the
timing of the inclusion of new portfolios in composites, and of the exclusion of
terminated portfolios from composites;

j. state the requirements and recommendations of the GIPS standards for asset
class segments carved out of multi-class portfolios;

k. state the requirements and recommendations of the GIPS standards with respect
to disclosures, including fees; the use of leverage and derivatives; conformity
with local laws and regulations that conflict with the GIPS standards; and
non-compliant performance records;

l. state the requirements and recommendations of the GIPS standards with respect
to presentation and reporting, including the required timeframe of compliant
performance records, annual returns, composite market values, and benchmarks;

m. explain the conditions under which the performance record of a past firm or
affiliation must be linked to or used to represent the historical record of a new
firm or affiliation;

n. evaluate the relative merits of high/low, interquartile range, and standard
deviation as measures of the dispersion of portfolio returns within a composite;

o. identify the types of investments that are subject to the GIPS standards for real
estate and private equity;

p. state and explain the provisions of the GIPS standards for real estate, and
calculate total return, income return, and capital return for real estate assets;

q. state and explain the provisions of the GIPS standards for private equity;

r. explain the private equity valuation principles, including the hierarchy of fair
valuation methodologies for private equity investments;

s. identify errors and omissions in given performance presentations, including real
estate and private equity performance presentations;

t. explain the purpose, scope, and process of verification;

u. state and explain the requirements for compliance with the GIPS Advertising
Guidelines.