CIPM Principles Review Course

Transcription

1 CIPM Principles Review Course Readings: Overview of GIPS GIPS 2010 Definition of Firm Guidance Statement Recordkeeping Guidance Statement 1 The Need for GIPS Standardization of procedures for calculating returns. Consistency of information across firms. Create investor confidence. Foster self regulation. Encourage global competition among investment firms, without creating barriers to entry. 2 1

2 Evolution of GIPS 1992: AIMR PPS formally adopted. 10 year history required. 1999: GIPS adopted for common global standards. Only 5 year history required. 2001: AIMR PPS Re draft released. AIMR PPS is the U.S. & Canadian version of GIPS. Other countries adopted their own country version of GIPS. (UKIPS, JIPS, etc.) Levels I & II verification became Firmwide verification and Performance Examinations (2003) 2006: Gold GIPS released. AIMR PPS and country versions phased out. 2010: 2010 Edition of GIPS. Required disclosure regarding verification. Move to Fair Value 3 GIPS Objectives To establish investment industry best practices for calculating and presenting investment performance that promote investor interests and instill investor confidence; To obtain worldwide acceptance of a single standard for the calculation and presentation of investment performance based on the principles of fair representation and full disclosure; To promote the use of accurate and consistent investment performance data; To encourage fair, global competition among investment firms without creating barriers to entry; and To foster the notion of industry self regulation on a global basis. 4 2

3 Core GIPS functions Calculations Procedures Reporting 5 GIPS Framework Must Define the Firm Creates the scope of assets to be brought into compliance. Must be consistent with how the firm is held out to the public. Must have written Policies and Procedures for maintaining compliance. Must define the composites ( strategies ) of the firm. Must define investment discretion. Leads to 3.A.1: All actual, fee paying, discretionary portfolios must be included in a composite. 6 3

4 GIPS Framework (marketing) Firms maintain a list of all composite descriptions. Includes Closed composites within last five years. Creation Dates imply when the composite was created, not when the strategy incepted. Prevents recycling of composites. Prospects may select presentations for any composite on the List. 0.A.9: Firms must make every reasonable effort to provide a compliant presentation to all prospective clients. 7 Who Can Claim Compliance? Anyone with Actual accounts (assets under management) Discretionary accounts Books and Records 8 4

5 Firm Assets 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. Key Guidance Statements: Firm Definition Composite Definition 9 Firm Definition Guidance Statement Importance: Defines the scope of GIPS compliance Think: List of Composites, and all accounts being in a composite. Principles: Consistent with out the firm is held out. Should be the broadest definition possible. Must not be a substitute for logistical issues. Must be appropriate, rational, and fair. Possible considerations: Legal entities Market/Client type Separate and distinct investment process Division or unit Geographic location 10 5

6 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. 11 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? 12 6

7 Fair Value 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. 13 Third Party Review Firm wide Verification: Independent review of a firm s claim of compliance. Assesses whether the composite construction requirements have been followed on a firm wide basis. Ensures Policies and Procedures are designed to calculate and present performance in compliance with GIPS. Does not attest to composite figures. Performance Examination: A detailed examination of a specific composite s compliant presentation. Brings some assurance to the composite figures. Firm wide verification must be completed as well. 14 7

8 GIPS Glossary All words in ALL CAPS are defined in the Glossary. Cairn s picks: Total Returns Trading Expenses Bundled Fee? Investment Management Fee Large Cash Flow vs. Significant Cash Flow 15 8