The Firm Composite Time-Weighted Return Report is the fourth section of the Global Investment Performance Standards (GIPS) 2020 Exposure Draft. Its focus is on Firms that use the Time-Weighted Return methodology to prepare compliant presentations for Composites.

This section combines the Disclosure, Presentation and Reporting sections for both traditional asset classes and alternative asset classes, strategies and structures Provisions contained in the 2010 edition of the GIPS for Firms using Segregated Account vehicles in executing their investment mandates.

The Wrap Fee/Separately Managed Account and Carve-Out provision sections of the 2010 edition of the Standards have also been consolidated under this section.

The number of Standards have increased from a combined total of 43 Requirements and 17 Recommendations to 61 Requirements and 18 Recommendations from the 2010 edition.

The applicability principles still hold here, so the increase in the number of Standards should not be a problem.

Guidance Statements Consolidated

Specific Standards have been drawn from best practice guidance areas such as Guidance Statements, discussions and Q&As. The Guidance Statements utilized here include:

1. Draft Guidance Statement on Benchmarks

2. Draft Guidance Statement on Overlay Strategies

3. Draft Guidance Statement on Use of Supplemental Information

4. Guidance Statement on Alternative Investment Strategies and Structures

5. Draft Guidance Statement on Risk

6. Guidance Statement on Real Estate

7. Guidance Statement on Private Equity

8. Guidance Statement on Wrap Fee/Separately Managed Account

9. Guidance Statement on Carve-Outs

10. Guidance Statement on Error Correction

Key New Standards

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

1.The requirements to still provide an appropriate risk measure for Composite and Benchmark even when the three-year annualized Ex-Post Standard Deviation cannot be calculated because monthly returns are unavailable (4.A.1k).

2. The requirement that if Advisory-Only Assets are presented, they must be separated from Total Firm Assets (4.A.8).

3. Requirements on the presentations related to Overlay Strategy Composites and Total Firm Overlay Exposure (4.A.11 and 4.A.12).

Other Notable Changes

Three notable changes can be observed in this section as follows:

1. One key change you will notice here is the:

introduction of Sunset Provisions that allow Firms to ‘retire’ certain Disclosures after a certain period to reduce the number of required disclosures that must accompany a compliant presentation in the GIPS Report.

The Sunset Provisions found in this section include Disclosure of:

1A. All significant event for a minimum of one year and as long as relevant (4.C.16).

1B. Changes to the name of Composite for at least one year and as long as relevant (4.C.20).

1C. Prospective and Retroactive Benchmark changes for as long as returns for prior Benchmark are included in GIPS Composite Reports for Prospective changes and for a minimum of one year for retroactive changes (4.C.29).

1D. Changes to GIPS Composite Reports due to Material Error for a minimum of one year and as long as relevant (4.C.35).

1E. Changes to the type of returns presented for a minimum of one year and as long as relevant (4.C.39).

2. Another key change is the:

expansion of the calculation and presentation of Component Returns beyond the scope of just real estate asset class to all asset classes.

3. The third key change is the expansion of the compliance statements to include:

the requirement for the Firm to establish policies and procedures for complying with applicable requirements of the GIPS as well as the modification of the ‘Verification’ sub-section of the compliance statement to outline exactly what verification seeks to do, which is, to provide assurance that the established policies and procedures are in line with the GIPS requirements that apply to the Firm and that they have been implemented on a Firm-wide basis.

Comments Requiring Feedback by GIPS Organization

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

1. Whether you agree (Comment #16):

a. to the elimination of the requirement for real estate portfolios to present component returns

b. to the elimination of the requirement for real estate portfolios to separately calculate component returns

c. that component returns should be recommended for all Composites and Pooled Funds presenting Time-Weighted Returns.

2. Whether the move to allow Firms to retire certain Disclosures after a period should be allowed and whether the identified sunset Disclosures have been correctly identified (Comment #17).

3. Whether Firms must disclose calculation details for Overlay Strategy Composites and whether there should be other Disclosures related to overlay strategy calculations (Comment #18).

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 Firm Composite Money-Weighted Return Report.