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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  • Current

    Effective: 1 July, 2021
    Categories: Calculation Methodology, Pooled Funds
    Source: GIPS Standards Technical Committee

    With respect to pooled funds and inclusion in composites with segregated accounts, I would like some clarity on the treatment of other expenses (administrative expenses) that the pooled fund incurs and how those are recorded for performance purposes. The 2010 edition of the GIPS standards indicated that both gross-of-fees and net-of-fees returns could be presented net of other expenses, including custody fees, as long as there is proper disclosure. Under the 2020 edition of the GIPS standards, when pooled funds are included in a composite with segregated accounts, is it acceptable to deduct other fees, such as administrative fees, for gross-of-fees returns, with appropriate disclosure?

    Pooled funds that are included in a composite are treated like any other portfolio. Gross-of-fees returns for a pooled fund must reflect the deduction of any transaction costs. Assuming composite net-of-fees returns are calculated at the portfolio level, for composite calculation purposes the net-of-fees return for a pooled fund must reflect the deduction of any transaction costs and investment management fees. Firms are not required to deduct other administration expenses, including custody fees, when calculating gross-of-fees returns or net-of-fees returns for the pooled fund for composite calculation purposes, but they may do so. If the composite gross-of-fees returns reflect the deduction of any fees beyond transaction costs, this fact must be disclosed (see Provision 4.C.6). If net-of-fees returns reflect the deduction of any other fees beyond investment management fees and transaction costs, this fact must be disclosed (see Provision 4.C.7.a). This scenario is different from calculating net returns for the pooled fund when the pooled fund’s performance is reported in a GIPS Pooled Fund Report. Pooled fund net returns included in a GIPS Pooled Fund Report must reflect the deduction of total pooled fund fees, which include all fees and expenses charged to the pooled fund, including but not limited to investment management fees and administrative expenses, as well as transaction costs.