Standard VII(B) – Reference to CFA® ...
Standard VII(B) – Reference to CFA Institute, the CFA Designation, and CFA Program... Read More
The GIPS standards must be applied on a firm-wide basis. There are two important issues that must be considered by a firm when it complies with the GIPS standards:
- Definition of the firm.
- Definition of discretionary.
Definition of Firm under GIPS
The GIPS standards state “The firm should adopt the broadest, most meaningful definition of the firm. The scope of this definition should include all geographical (country, regional, etc.) offices operating under the same brand name, regardless of the actual name of the individual investment management company.”
This implies that:
- Firms must be defined as an investment firm, subsidiary, or division held out to clients or prospective clients as a distinct business entity.
- Total firm assets must be the aggregate of the fair value of all discretionary and non-discretionary assets under management within the defined firm.
- Firms must include the performance of assets assigned to a sub-advisor in a composite, provided that the firm has discretion over the selection of the sub-advisor.
- Changes in a firm’s organization are not sufficient grounds for alternation of historical composite results.
Definition of Discretionary under GIPS
The GIPS standards state “If documented client-imposed restrictions interfere with the implementation of the intended strategy to the extent that the portfolio is no longer representative of the strategy, the firm may determine that the portfolio is non-discretionary.”
Non-discretionary portfolios must not be included in a firm’s composites.
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