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 September, 2001 - 31 October, 2012Categories: Composite ConstructionSource: Investment Performance Council (IPC)
An investment management firm has a Euro-zone fixed income composite that contains the following three portfolios:
a fund that is invested in European bonds with net assets of 20,
a fund that is invested in bonds of one country of the Euro-zone with net assets of 30, and
a private portfolio invested entirety in the 2 above mentioned funds. Net assets of this portfolio are 10.
Is it correct to say that the number of portfolios of the composite described above is 3?
Is it correct to say that the amount of assets in the composite is 20+30+10=60?
Is it correct to say that the total firm’s assets is 50 or that the total firm’s assets is 60 (in the case this firm only owns that one composite)?
The question is that of eliminating double counting assets. Is it correct to say that showing the above composite’s asset level of 60 is not misleading to the reader? (The firm will also disclose what % the composite represents of the firm’s assets, therefore showing 110% of the firm’s assets means that some assets are counted more than once. For example, because the management of the private portfolio above is not geared towards choosing the securities in the portfolio, but rather geared towards realizing the proper asset allocation between both funds.)
The GIPS standards are based on the principles of fair representation and full disclosure. Double counting assets would not fairly represent the firm’s assets. The composite would have 3 portfolios and have net assets of 50. If there are no other assets within the firm, then total firm assets would be 50.
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