Category: 101 concepts

Concept 100: Overview of GIPS

GIPS stands for ‘Global Investment Performance Standards’. Why were the GIPS standards created? In the past, investment performance presentations were misleading. Questions about the accuracy and credibility of data made comparisons among different investment firms difficult. Common misleading practices included: Representative accounts: Using only the best performing portfolios to represent the firm’s overall performance. Survivorship bias: Excluding accounts that performed poorly and were consequently terminated. Varying time periods: Selecting time periods during which the fund had exceptional performance. The GIPS standards were created to prevent misrepresentation of performance. They establish an industry-wide, standard approach for calculation and presentation of investment… Read More

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Concept 101: Construction and Purpose of Composites

GIPS standards require the use of composites. A composite is formed by grouping portfolios that represent a similar investment strategy, objective or mandate. For example, if you are managing 100 accounts and one of your strategies is to invest in large cap value stocks, and you use this strategy for 70 accounts. Then these 70 accounts will form one composite. Similarly, if you have another strategy to invest in small cap growth stocks; and you use this strategy for the remaining 30 accounts. Then these 30 accounts will form another composite. You will have to report performances of these two… Read More

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