Question

Tree Fort Capital runs a large commingled portfolio of domestic equities, and a number of separately managed accounts for its largest investors. The separate accounts are multi-asset portfolios that hold stocks, bonds, derivatives and cash. In compiling its returns data, the performance analyst suggests that the equity holdings of the separate portfolios be isolated from the other assets, and used on a standalone basis calculate the fund’s equity returns. Explain why this action might be out of compliance with GIPS?

Answer 1

Ans:

Provision 3.A.18 concludess that if a firm has or obtains standalone portfolios managed in the same strategy as the carve-outs with allocated cash, the firm must create a separate composite that includes only the standalone portfolios, so if the the performance analyst suggests that the equity holdings of the separate portfolios be isolated from the other assets, and used on a standalone basis calculate the fund’s equity returns, that will overreach regulations of GIPS.