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 November, 2010 - 31 December, 2019Categories: BenchmarksSource: GIPS Executive Committee
Our balanced composite strategy takes active asset allocation decisions across a range of asset classes. The weights of the assets classes within the benchmark are updated quarterly, to reflect changes to the balanced composite’s model portfolio. The GIPS standards require that if a firm changes the benchmark, the firm must disclose the date of, description of, and reason for the change. Given the nature of the benchmark, the benchmark is subject to change each quarter. What must be disclosed to satisfy this requirement?
The requirement to disclose the date of, description of, and reason for a change in the benchmark is intended to describe substantive changes in the benchmark. Firms must determine if the change in aspects of the benchmark are important enough to warrant disclosure of the change. The GIPS standards also require that if a custom benchmark or combination of multiple benchmarks is used, the firm must disclose the benchmark components, weights, and rebalancing process. In this example, the benchmark may change every quarter as part of the normal procedure. It is required to disclose the description of the benchmark(s); if the benchmark is widely known, the benchmark name can be used to satisfy this requirement. In addition, it is appropriate in this instance to disclose that the benchmark is rebalanced quarterly using the weights of the assets classes in the model portfolio. A firm is not required to disclose how the asset class weights have changed each quarter. If the benchmark for the composite were to change from a benchmark created quarterly using the asset class weights of the model portfolio to just one benchmark reflecting the investment strategy of the composite, that would be a substantive change that would need to be disclosed.