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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ArchivedEffective: 1 December, 2013 - 31 December, 2019Categories: Cash FlowSource: GIPS Executive Committee
The GIPS standards state that for periods beginning on or after 1 January 2005, firms must use approximated rates of return that adjust for daily-weighted external cash flows and that for periods beginning on or after 1 January 2010, firms must value portfolios on the date of all large cash flows. Given the 2010 requirement referenced above, is the 2005 requirement to daily weight external cash flows still effective for periods beginning on or after 1 January 2010? We calculate our portfolio returns on a monthly basis.
The 2005 requirement referenced above was not eliminated. If the firm calculates performance monthly and there are no large cash flows during the month, the firm must continue to use a monthly rate of return methodology, such as Modified Dietz, which adjusts for external cash flows on a daily-weighted basis. Effective for periods beginning on or after 1 January 2010, if a large cash flow takes place during the month, the firm would revalue the portfolio at the time of the large cash flow and calculate performance for the partial periods before and after the large cash flow using a methodology that adjusts for daily-weighted external cash flows.
For example, if there are numerous external cash flows during the month with a single “large” cash flow in the month, the firm would compute the portfolio return for the partial monthly periods before and after the large cash flow using a rate of return methodology, such as Modified Dietz, which adjusts for the other (non large) external cash flows on a daily-weighted basis. The firm would then geometrically link these two partial period returns to calculate the portfolio’s monthly time-weighted return.
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