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.

Content from prior Q&As was included in the GIPS Standards Handbook as much as possible and many Q&As were archived. Change the Status drop-down filter to "Archived" to see the archived Q&As.

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Archived

Effective: 1 October, 2012 - 31 December, 2019

Categories: Alternative Investments

Source: Guidance Statement on Alternative Investment Strategies and Structures

A firm manages a fund of hedge funds. Subscriptions and redemptions in the underlying investee hedge funds can only be made at the beginning of a month. As a result, cash paid in by investors in the fund of hedge funds for subscriptions prior to the beginning of the next month is parked in a non-discretionary account because this cash cannot be invested effectively during the month of the cash flow. How should such external cash flows be treated in terms of discretion, performance calculation, and composite allocation?

Some hedge funds only accept subscriptions and redemptions on a monthly or quarterly basis. Therefore, external cash flows occurring during the month would not be invested according to the investment strategy. Including these contributions in the fund returns prior to their investment would not be appropriate.