The Composite and Pooled Fund Maintenance section for Firms is the third section of the Global Investment Performance Standards (GIPS) 2020 Exposure Draft. This section replaces the Composite Construction section of the 2010 edition of the Standards.

The focus is still on how to construct and maintain Composites. Although still limited to the Firm, with Asset Owners having their own related section, it has now been expanded to include pooled funds.

In line with the universal applicability and ease of use goals for the new Standards, certain sections of the 2010 edition have also being consolidated here and include:

1. Wrap Fee Composites

2. Carve-Out Composites

The number of Standards under this section have increased from that in the 2010 edition (Input Data Section plus Calculation Methodology section) to 19 requirements and 2 recommendations, up from 10 and 2 respectively from the 2010 edition.

Here again, not all will apply based on the nature of operations and asset classes and strategies used by the particular Firm, so applicability rules still apply.

Guidance Statements Consolidated

Other sections from Guidance Statements have been converted into specific provisions from such areas as the Guidance Statement on Treatment of Significant Cash Flow.

New Standards and Other Changes

Apart from the consolidations, the key new Standards that have been added here include:

1. The requirement to create Composites representative of Firm strategies offered as a Segregated Account (3.A.1).

2. Introduction of the term, Segregated Account.

3. The requirement to include Pooled Funds in Composites if they meet Composite. Definition but not required to create Composites just for Pooled Funds if the Pooled Fund strategy is not offered as a Segregated Account strategy (3.A.3).

4. Removal of the option to create sponsor-specific Wrap Fee Portfolios when presenting performance to that specific sponsor (3.A.14).

5. Relaxation to allow carve-outs with synthetic cash allocation (3.A.15b).

6. Requirements for Carve-Out strategies to be representative of standalone Portfolio strategies (3A.16).

7. Requirements to create Carve-Outs from all Portfolios and Portfolio segments managed within Firm to a strategy for which a Carve-Out Composite has been created and to include all such Crave-Out segments in Composite (3.A.17).

8. The requirement to create separate Composites for standalone Portfolios managed to a Carve-Out Composite strategy (3.A.18).

9. The requirement not to combine different Carve-Outs to create a simulated strategy and present as a Composite (3.A.19).

10. Change of name from Wrap Fee/SMA Portfolios to Wrap Fee

Comments Requiring Feedback by GIPS Organization

The GIPS Organization requires your feedback on the following specific areas:

1. Whether the elimination of the sponsor-specific Wrap Fee Composites and the change of name from Wrap Fee/Separately Managed Account Portfolios to Wrap Fee are appropriate (Comment #14).

2. Whether Firms (Comment #15):

a. should be allowed to include Carve-Outs with allocated cash in Composites

b. Should be required to use specific methods to allocate cash to carve-outs

c. Should be required to create and maintain Composites that include only standalone portfolios

How to Send in Your Comments

We have made it easy for you to go through the comments in bite-sizes and to submit your responses quickly by completing comment survey forms covering the feedback areas requested and more. At the end of the commenting period (December 31, 2018), we will compile all the comments received and forward to the GIPS Organization for review.

Sign-up for free on our Composite Insider platform here to do so.

Alternatively, you can send your written responses to the GIPS Organization.

In the next post, we review the changes to Input Data and Calculation Methodology for Firms.