Responding to a GIPS Composite Question

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?

Our reply:

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!