PROVISIONS OF GLOBAL INVESTMENT PERFORMANCE STANDARDS - SECTION 8

PROVISIONS OF GLOBAL INVESTMENT PERFORMANCE STANDARDS - SECTION 8

Learning Outcome

1. Describe the nine major sections of the GIPS standards

Wrap Fee/Separately Managed Account (SMA) Portfolios

The following provisions apply to the calculation and presentation of performance when presenting a compliant presentation to a wrap fee/SMA prospective client (which includes prospective wrap fee/SMAsponsors, prospective wrap fee/SMA clients, and existing wrap fee/SMA sponsors). Unless otherwise noted, the following wrap fee/SMA provisions supplement all the required and recommended provisions of the GIPS standards in Sections 0–5.

Although there are different types of wrap fee/SMA structures, these provisions apply to all wrap fee/SMAportfolios where there are bundled fees and the wrap fee/SMA sponsor serves as an intermediary between the firm and the end user of the investment services. These provisions are not applicable to portfolios defined as other types of bundled fee portfolios. These provisions are also not applicable to model portfolios that are provided by a firm to a wrap fee/SMA sponsor if the firm does not have discretionary portfolio management responsibility for the individual wrap fee/SMA portfolios. Similarly, a firm or overlay manager in a Multiple Strategy Portfolio (MSP) or similar program is also excluded from applying these provisions to such portfolios if they do not have discretion.

All wrap fee/SMA compliant presentations that include performance results for periods beginning on or after 1 January 2006 must meet all the requirements of the following wrap fee/SMA provisions.

Wrap Fee/SMA Requirements

Composite Construction—Requirements

8.A.1

Firms must include the performance record of actual wrap fee/SMA portfolios in appropriate composites in accordance with the firm’s established portfolio inclusion policies. Once established, these composites (containing actual wrap fee/SMA portfolios) must be used in the firm’s compliant presentations presented to wrap fee/SMA prospective clients.

Disclosure—Requirements (the following provision does not apply: 4.A.15)

8.A.2	For all wrap fee/SMA compliant presentations that include periods prior to the inclusion of an actual wrap fee/SMA portfolio in the composite, the firm must disclose, for each period presented, that the composite does not contain actual wrap fee/SMA portfolios.
8.A.3	For any performance presented for periods prior to 1 January 2006 that does not comply with the GIPS standards, firms must disclose the periods of non-compliance.
8.A.4	When firms present composite performance to an existing wrap fee/SMA sponsor that includes only that sponsor’s wrap fee/SMA portfolios (resulting in a “sponsor-specific composite”):   Firms must disclose the name of the wrap fee/SMA sponsor represented by the sponsor-specific composite; and   If the sponsor-specific composite compliant presentation is intended for the purpose of generating wrap fee/SMA business and does not include performance net of the entire wrap fee, the compliant presentation must disclose that the named sponsor-specific compliant presentation is only for the use of the named wrap fee/SMA sponsor.

Presentation and Reporting—Requirements (the following provision does not apply: 5.A.3)

8.A.5	When firms present performance to a wrap fee/SMA prospective client, the composite presented must include the performance of all actual wrap fee/SMA portfolios, if any, managed according to the composite investment mandate, objective, or strategy, regardless of the wrap fee/SMA sponsor (resulting in a “style-defined composite”).
8.A.6	When firms present performance to a wrap fee/SMA prospective client, performance must be presented net of the entire wrap fee.
8.A.7	Firms must not link non-GIPS-compliant performance for periods beginning on or after 1 January 2006 to their GIPS-compliant performance. firms may link non-GIPS-compliant performance to their GIPS-compliant performance provided that only GIPS-compliant performance is presented for periods beginning on or after 1 January 2006.