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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Archived

Effective: 1 November, 2012 - 31 December, 2019

Categories: Changes to the Standards: 2006 GIPS

Source: GIPS Handbook, 3rd Edition

Please explain the difference between a “composite description” and a “composite definition.” For example, the GIPS standards require firms to disclose the composite description in the compliant presentation; however, there is a Guidance Statement on Composite Definition.

A composite description is defined as general information regarding the investment, mandate, objective, or strategy of the composite. The composite description may be more abbreviated than the composite definition but must include all key features of the composite and must include enough information to allow a prospective client to understand the key characteristics of the composite’s investment mandate, objective, or strategy. For example, a composite description might state that “the Large-Cap composite includes all non-taxable portfolios with at least a 90% target allocation to large-cap stocks. We define large-cap stocks as those securities with a capitalization of €5 billion or above.” In addition to the general information regarding the investment mandate, objective, or strategy, a composite definition would include other factors concerning the characteristics of the portfolios included in the composite and is defined as detailed criteria that determine the assignment of portfolios to composites. Criteria may include investment mandate, style or strategy, asset class, use of derivatives, leverage and/or hedging, targeted risk metrics, investment constraints or restrictions, and/or portfolio type (e.g., segregated or pooled, taxable versus tax exempt). Other factors might include the new portfolio inclusion policy, the closed portfolio exclusion policy, and the details concerning how significant cash flows are handled.

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