The
Resource Center - GIPS / AIMR-PPS® Tips
With
the changeover from AIMR-PPS to GIPS, there are a few details that
need to be addressed under GIPS that did not exist under PPS. We will,
over time, add tips toward the handling of these new elements or direct
you to areas that have suggestions and/or answers to these issues.
We
do recommend that anyone dealing with the standards in the investment
industry should register for updates from AIMR. This can be done from
their website - www.AIMR.org.
One
new area that must be dealt with is the establishment of written
policies and procedures. Another question we have heard often
is when is a portfolio NOT a member of a composite.
We have lists of suggestions to help with these issues.
If
there are areas that you would like to see addressed or any information
you feel we should add, please let us know by sending e-mail to info@spauldinggrp.com
What
firms should have policies and procedures for:
1.
How you calculate performance (your formula(s); how you handle
cash flows (start-of-day; end-of-day); if overrides are permitted)
(this is applicable for both portfolio returns as well as composite
returns).
2.
Composite Construction (the rules to create composites; who
makes the decision; who reviews these decisions; what happens if you
discover a portfolio was in the wrong composite) .
3.
Process for handling new accounts (who makes the decisions
as to what composite(s) they go into).
4. Process for termination/portfolios (what occurs when a relationship
ends; tracking; removal from composites).
5. Change in styles/ strategy (how handled when a client requests
a change; timing).
6. Discretion (your rules for discretion).
7.
Minimum Account Size (if one exists, what happens when an account
falls below / goes above).
8.
How you calculate Gross of Fee returns (what is your formula).
9.
How you calculate Net of Fee returns (what is your formula;
how you handle if the fees are paid externally).
10.
Pricing procedures/ sources (this is more important w/non-US
investing, but worth touching on for domestic, too; also, for FX rates
- again, for non-US; includes sources of pricing, and rates, as well
as the timing you use for pricing; also, if there are known differences
between these and the composite's associated benchmark).
11
Treatment of cash flows (how you handle them from a return
perspective (touched on in #1, above - start-of-day, end-of-day) as
well as temporary removal (#12 below).
12. Temporary removal of portfolios (circumstances that would
warrant removal; include, if appropriate, for large flows (criteria;
timing).
13. Policy on reporting (what you give to clients, prospects;
how handle special situations).
14. How you handle as-of adjustments to returns (e.g.,
when a situation arises that may require a change in the originally
published number(s); we're actually in the process of publishing an
article on this topic -- should be in the Summer issue of JPM; deals
w/timing, circumstances when adjustments would be made; who you communicate
to, etc.).
15.
Portability issues -- how were mergers/acquisitions handled
(where applicable).
16.
Corporate action processing -- how handled. This can be an
issue when, for example, there's a spin-off and you don't have all
of the details for some time, meaning you may have to revisit a previously
processed action.
17.
Carve-outs -- if you use them, how you do the carving out (what
method you employ; if it's changed over time).
18. Measure(s) of dispersion -- what measure(s) is(are) used;
under what circumstances you might use one (e.g., standard deviation)
rather than another (e.g., high/low).
19.
Initial Composite Construction (the process that was used to
create the composites).
The
six reasons why a portfolio may not be in a composite:
1.
New account - hasn't been under management long enough to be included.
2. Terminated account
3. Below minimum asset size
4. Large cash flow has occurred
5. Change in investment style (in a transition state; removed from
the old-style composite; awaiting movement into the new composite)
6. Non-discretionary
7. Non-fee paying
Additional
Resources
Books
Newsletters/Pamphlets
/ white papers
Articles
