CIPM Experts Review Course

Transcription

1 CIPM Experts Review Course Readings: Overview of GIPS; GIPS Firm Definition LOS A Defines the scope of GIPS compliance 0.A.4: GIPS must be applied on a firm wide basis 0.A.13: Calculation of Total Firm Assets 3.A.1: All discretionary accounts must be in a composite Principles: Consistent with out the firm is held out to the public. Should be the broadest definition possible. Must not be a substitute for logistical issues. Must be appropriate, rational, and fair. 2 1

2 Firm Assets LOS A Once the firm has been defined, assets under management includes: The Fair Value of Fee paying & non fee paying assets. Discretionary assets. Non discretionary assets. Sub Advised assets. 3 Who Can Claim Compliance? LOS A Anyone with Actual accounts (assets under management) Discretionary accounts Satisfy all GIPS requirements Books and Records That which cannot be compliant Firms that have not met all applicable GIPS requirements. Calculations Composites/Portfolios Model returns 4 2

3 Input Data Requirements: Valuation Frequency: Monthly beginning 1/1/2001. Date of all large cash flows beginning 1/1/2010. Use calendar month end beginning 1/1/2010. Trade date accounting beginning 1/1/2005. Accrual accounting for fixed income. Recommendations: Re value for all cash flows. Accrual accounting for dividends. Accrue for management fees. LOS B 5 Recordkeeping Must keep all records to support the firm s claim of compliance. Guidance Statement does imply the list is finite Support for portfolio returns and market values. Trades, prices, quantities, cash flows, accruals, fees. Support for composite calculations and membership. Contracts, Investment Policy Statements, Termination letters. Firm AUM. Content of compliant presentations. Policies and Procedures, and historical changes. Must be third party records? Exceptions for record keeping? LOS B 6 3

4 Fair Value LOS C From the Glossary: The amount at which an investment could be exchanged in a current arm s length transaction between willing parties in which the parties each act knowledgeably and prudently. The valuation MUST be determined using the objective, observable, unadjusted quoted market price for an identical investment in an active market on the measurement date, if available. In the absence of an objective, observable, unadjusted quoted market price for an identical investment in an active market on the measurement date, the valuation MUST represent the FIRM S best estimate of the MARKET VALUE. FAIR VALUE MUST include accrued income. 7 Fair Value Hierarchy LOS C Objective, observable, unadjusted quoted market prices for identical investments in active markets on the measurement date. (aka, market price, either quoted or transacted) Objective, observable quoted market prices for similar investments in active markets. Quoted prices for identical or similar investments in markets that are not active. Observable, market based inputs, other than quoted prices. Subjective, unobservable inputs for investments where markets are not active on the measurement date. 8 4

5 Return Calculations LOS E Portfolios: Total Returns Monthly returns (1/1/2001), re valued for large cash flows (1/1/2010). Daily time weighting of cash flows (1/1/2005). Includes cash. After trading costs (including Bundled Fees) Composites: Asset weighted using BMV or BMV + wcfs. Quarterly calculations (1/1/2006), and Monthly beginning 1/1/ Composite Calculations LOS D Weight Portfolio A Portfolio B Total Wtd. Total BMV /8/ /23/ EMV Portfolio A Portfolio B Wtd. Total BMV + wcf Return 21.74% 13.33% 1. BMV only: (100/ %) + (150/ %) = 16.69% 2. BMV + wcfs: (138/ %) + (150/ %) = 17.36% 3. Aggregate Method: ( )/(288) = 17.36% 10 5

6 Fees LOS F Pure Gross Return Commissions & Trading costs (Withholding taxes recommended) = Gross Return Asset based management fees Incentive based management fees = Net Return Custody fees Miscellaneous fees (beyond control of manager) = Client Return 11 More Fees Know where the fees are coming from and remember: Return = Profit Capital LOS F With Direct Debit: Gross Returns: Profit = (EMV BMV CF + Mgmt Fees) Net Returns: Profit = (EMV BMV CF) Paid by Check: Gross Returns: Profit = (EMV BMV CF) Net Returns: Profit = (EMV BMV CF Mgmt Fees) 12 6

7 Composite Construction LOS G All actual, fee paying, discretionary portfolios must be included in at least one composite. No model or simulated portfolios. Non fee paying accounts may be included in composites. No non discretionary portfolios. Portfolios may be in more than one composite. Composites: Must be defined by strategy. Must not be changed retroactively. Must include/exclude portfolios on a timely and consistent basis. Must include closed accounts through the last full measurement period. 13 Membership policies New Portfolios: First full month under management. First full quarter under management. After one full month under management. Terminated Portfolios: Last full month/quarter under management. Portfolios switching composites: Should follow a hybrid of above new/terminated policies. Should occur with client driven event. Likely a 1 period (month or quarter) gap where account is not in any composite. LOS G 14 7

8 Significant Cash Flows LOS G Glossary: client directed external cash flows [that] may temporarily prevent the firm from implementing the composite strategy Rules: Can be implemented at the option of the firm. Significance is defined by the firm, and can/should be compositespecific. Must not use performance. Must use $ or % of portfolio assets. Must be defined and established ex ante (before the fact) Must be applied consistently. Recommends using Temporary New Account 15 Discretion LOS H The ability of the firm to implement its intended strategy. If documented, client imposed restrictions significantly hinder the firm from fully implementing its intended strategy, the firm may determine that the portfolio is non discretionary. Stick with your initial reaction! Ask yourself: What would be the most consistent, simple, and transparent approach? 16 8