We were recently sent the following question, that relates to GIPS(R) (Global Investment Performance Standards) and composites:
What becomes of a composites performance if the strategy (value, growth, etc) remains the same, but a new team of portfolio managers and analysts take over the strategy but implement a new and different investment process and construction to the strategy composite?
Does a new composite need to be created? If not or so, what disclosure should be stated so that performance can be clearly indicated as to the differentiation?
It has to do with "materiality." Performance belongs to the "firm." There is an expectation that staff will change over time. If the change is materially significant, then creating a new composite may be justified; however, I’m thinking of changes of the magnitude of almost going from a fundamental to a quantitative style of investing. If the strategy, per se, hasn’t changed, to justify creating a new composite might be difficult.
Changes in management would be considered "significant events," requiring a disclosure. And so, to disclose that effective a certain date, management changed, will communicate to the prospect that the "firm" has managed the strategy for a particular period, and that since a certain date, the management changed. Likewise, if the benchmark changes, you would document this.
Agree? Have different thoughts? Please chime in!