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cash flow in excess of 10 percent of the market value of the portfolio or portfolio segment occurs, and the interim market value is available, an interim time-weighted calculation should be performed.

      12. Gross returns (before deduction of fees) and net returns (after deduction of fees) should be calculated.

      13. Returns should always be calculated after deduction of brokerage commissions.

      14. Vehicle-specific considerations:

      a. Wrap-fee performance should be presented after deduction of all bundled fees. Gross performance (before all bundled fees) may also be shown.

      b. Net performance calculations for pooled private investment vehicles should reflect all fees and commissions both inside and outside of the vehicle.

      c. Mutual fund performance should be presented after deduction of all expenses, including loads.

      B. Client composites

      1. Individual portfolios should be aggregated into a composite portfolio to enable the client to evaluate the performance of an overall pool of assets (e.g., the performance of the salaried employees' plan or the equity-oriented investment managers).

      2. Composites should be aggregated by combining the market values and cash flows of the individual portfolios.

      3. For client-reporting purposes, composites should not be created by averaging the returns of the individual portfolios.

      C. Statistical measures of risk

      1. Measures of risk should be presented in addition to rates of return to give the client a more complete picture of the investment manager's results. The consultant should determine the number of observations that are sufficient for risk calculations.

      2. At a minimum, portfolio risk should be measured by calculating an annualized standard deviation derived from monthly or quarterly total rates of return for a meaningful reporting period (as determined by the consultant).

      3. Beta, residual standard deviation, correlation, covariance, semivariance, or other measures may be presented when appropriate.

      4. Presentation of fundamental portfolio characteristics such as yield, price-earnings ratio, duration, or quality is encouraged.

      D. Benchmarks

      1. Benchmarks that represent the portfolio's investment style, strategy, and level of risk should be selected.

      2. Benchmarks should be constructed on the basis of total return.

      3. Balanced benchmarks should be constructed when necessary. Appropriate rebalancing techniques should be used.

      4. The benchmarks used as comparisons for a portfolio segment should reflect as accurately as possible the type of investment assets held in that segment.

      5. Benchmark comparisons should be applied consistently over time, and any substantial changes in their composition should be disclosed to the client.

      6. Composite results should be presented with their own set of benchmarks that reflect the asset mix and investment objective of the combined pool of assets.

      7. The return for an individual manager should be contrasted to the manager's composite return for the appropriate mandate.

      E. Comparative sample peer construction

      1. If a manager's performance is compared with that of a peer group of managers, the peer group should be of similar style.

      2. Time-weighted total rates of return should be used for construction of and comparisons with peer group samples.

      3. Returns should be calculated either before or after deduction of investment management fees to ensure consistency and to allow comparison with the client portfolio.

      4. Cash and equivalents for portfolios in the comparative sample should be treated in a manner consistent with the management of the client's portfolio.

      5. The consultant should disclose to the client the construction and composition of any sample used for comparative purposes.

      6. Sample comparisons should remain consistent over time unless material changes have occurred in the client's portfolio.

      7. If measures of risk are presented for the portfolios in the comparative sample, a consistent method for calculating these measures should be used for all component portfolios.

      8. If balanced-portfolio comparative samples are constructed from the returns for equity, fixed income, cash and equivalents, and other types of portfolios, returns for the balanced portfolio should be calculated with the assumption of at least annual rebalancing.

      9. The consultant should disclose to the client that biases appear in all peer group samples, such as, survivor, back-fill, classification, and composition biases.

      III. DISCLOSURE AND PRESENTATION OF RESULTS TO CLIENTS

      A. General

      1. The format of the performance report should clearly show the client what the investment results were, how the results compare with those of various benchmarks, and how much risk was incurred to achieve the investment results.

      2. Any nonconformity with the IMCA Performance Reporting Guidelines should be disclosed to the client.

      3. The consultant is responsible for providing the client with appropriate disclosure regarding potential conflicts of interest, relevant business relationships, and other pertinent considerations.

      B. Time periods

      1. Time periods presented should include quarterly, annual, and cumulative periods, market cycles, and any other time periods necessary to present an accurate and objective assessment of the investment manager's performance.

      2. To minimize time-period bias, the consultant should normally focus on longer time periods and trends, while also being mindful of short-run trends, in judging the performance of the investment manager.

      IV. NONTRADITIONAL ASSET CLASSES

      A. These asset classes would include but not be limited to: derivative securities, municipal bonds, private investments, and real estate.

      B. Performance reporting for nontraditional assets should be handled in a manner that provides the client with a reasonable and objective assessment of the portfolio's performance.

      C. Because many nontraditional asset classes involve complex investment strategies, complete disclosure of the nature and consequences of the investment strategies being used is essential.

      Section 4: Recommended Reporting and Disclosures

      I. MINIMUM RECOMMENDED REPORTING AND DISCLOSURES – MANAGER SEARCH AND ANALYSIS

      Listed below are the minimum recommended reporting and disclosures for compliance with the IMCA Performance Reporting Guidelines regarding manager search and analysis.

      A. Performance composites presented to clients should be obtained from firms that state they are in compliance with GIPS.

      B. The investment manager should provide individual performance composites that have been prepared in accordance with GIPS. The consultant should present GIPS-compliant performance composites to clients.

      C. Supplemental performance information should be identified and disclosed. At least one GIPS compliant performance composite should accompany the supplemental information.

      D. Model portfolio results should not be linked with performance composites of actual accounts for presentation to a client.

      E. A statement should be included indicating that because a performance composite is an average of two or more accounts, it does not represent the performance of an actual portfolio.

      F. When the investment manager has compiled the performance composite, this should be disclosed.

      G. Cumulative returns for the longest common term should be shown for each manager.

      H. Annual returns for each year presented should be shown for every manager.

      I.

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