Q & A Database

The GIPS Standards Q&A database contains questions and answers (Q&As) on various searchable topics that provide additional interpretation on an issue. Q&As are considered to be authoritative guidance and must be followed in order to claim compliance with the GIPS standards.

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1 Result
  • Current

    Effective: 1 January, 2020
    Categories: Alternative Investments, Discretion
    Source: 2020 GIPS Standards

    Our firm is hired to manage Liability Driven Investment (“LDI”) portfolios by pension fund clients. The typical objective of the LDI strategy is to manage the portfolio such that the duration of the portfolio’s assets matches the duration of the total pension liability. We accomplish this objective by creating a portfolio that includes two components: a swaps overlay alongside an actively managed bond portfolio. We enter into swaps to adjust the duration of the bond portfolio to match the client’s liability. We view the swaps element to be effectively non-discretionary in that we have no control over the liability matching requirement. We therefore include only the actively managed portion (the bond portfolio) in a composite and do not include the entire bond with swaps portfolio in a composite. Is this the correct approach?

    The issue here is to determine whether the firm is (1) managing the entire LDI strategy, including both the fixed income and the swaps element of the portfolio, or (2) simply a fixed-income manager that offers a bond strategy as its discretionary product and, for the duration matching component, merely implements the swaps overlay according to the client instructions (i.e., the swaps overlay component is considered non-discretionary). 

    In the first instance, the firm has been hired for an LDI strategy that includes both the bond portfolio and the swaps overlay. The entire portfolio must be included in an appropriate composite. If the bond-only portfolio meets the requirements to qualify as a carve-out, the firm may include the bond-only portfolio in a composite, but this is optional.  

    In the second instance, the firm is allowed to consider either the whole portfolio or the swaps overlay portion of the portfolio as non-discretionary, if the firm considers the swaps to be client-restricted securities. The firm may therefore choose to classify the restricted portion of the portfolio as non-discretionary.

    Please also see original Q&A