Wednesday, April 14, 2010

Composites, from the ground up

I received a question from a software vendor: "[can you build] a composite from the security-level holdings of member portfolios met GIPS(R) [Global Investment Performance Standards] rather than asset-weighting the ROR's? We have a client that wants to do this but I question whether it meets GIPS standard?"

The answer is "no," because the standards require composites to include cash and (as of 1 January 2010) cash must be managed separately.

However, if a firm wishes to do this for supplemental information purposes (e.g., to highlight their performance in particular asset classes, market segments, etc.) this would be fine. With supplemental information firms have a lot of options regarding how they can provide prospective clients their performance and risk information.

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