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 June, 2009 - 31 December, 2019

Categories: General/Miscellaneous

Source: GIPS Executive Committee

If a portfolio we manage holds securities, or has transactions with a counterparty, that are subject to bankruptcy or default, how should this be reflected for purposes of compliance with the GIPS standards? Is the treatment of these securities the same when the manager has no ability to negotiate the claim, the client is responsible for recovery of the claim (making it difficult for the manager to track), or the recovery takes a lengthy time to resolve?

The assets and transactions as described above must be valued with the resulting losses reflected in performance. The portfolio must remain in the original composite and must be included in composite performance. The treatment of such securities for purposes of compliance with the GIPS standards is the same when the client is responsible for the negotiation and/or recovery of the claim; and/or when the recovery takes a lengthy time to resolve. Although it may be difficult to obtain information about the estimated receivable value and the subsequent recovery, the firm must include the performance of the bankrupt or defaulted securities and/or transactions in the portfolio and respective composite returns just as it would any other security it purchased for the portfolio.

Firms must not claim that bankrupt or defaulted securities and/or transactions as described above are non-discretionary in order to exclude these securities from the performance of the portfolio or the composite.

Additionally, firms must determine whether this situation rises to the level of a significant event for the composite. Firms must disclose all significant events that would help a prospective client interpret the performance record.