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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Current

Effective: 1 January, 2020

Categories: Alternative Investments, Definition of the Firm

Source: 2020 GIPS Standards

Some of our hedge funds are domiciled in offshore locations; however, a local legal entity formally acts as a fund manager to fulfill the local regulations. Our firm formally acts as investment adviser to this local entity, which is theoretically free to follow our advice or not. However, in actuality, all of our investment advice is implemented, so our firm effectively makes all investment decisions with respect to those funds. Are we allowed to include those funds in the definition of the firm and the relevant portfolio universe?

Yes. The definition of the firm delineates the universe of “all” portfolios that must be included in total firm assets.

In the case of hedge funds registered off-shore, the investment management function may be formally assigned to a third-party entity that is not actually performing the portfolio management function, and the firm may be named as having an advisory-only role.

In assessing such situations, a “substance over form” principle should be applied and a great degree of judgment is required to assess whether a fund is effectively managed or only advised by the firm with another entity making the final investment decisions. In the above example, if the firm can demonstrate that it effectively exercises discretionary investment management and can provide documented evidence that all investment advice has been implemented accordingly, it must include the funds concerned in the definition of the firm. In addition, it would be inappropriate and against the ethical spirit of the GIPS standards to make use of formal adviser-manager structures to avoid inclusion of certain funds or portfolios in the firm.

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