Performance Reporting & Benchmarking Flashcards
7 cards from real RIA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Performance Reporting & Benchmarking flashcards as text
What does GIPS stand for in the context of investment performance reporting?
Answer: Global Investment Performance Standards
GIPS stands for Global Investment Performance Standards, a set of ethical standards for calculating and presenting investment performance created by the CFA Institute.
Which return calculation method is required by GIPS because it eliminates the distorting effects of external cash flows?
Answer: Time-weighted rate of return
The time-weighted rate of return (TWR) is required by GIPS because it removes the impact of client-driven cash flows, allowing fair comparison of manager performance.
In investment management, what is a benchmark primarily used for?
Answer: Comparing and evaluating a portfolio manager's performance
A benchmark serves as a standard of comparison that reflects the investment universe and risk profile of the portfolio, allowing evaluation of a manager's relative performance.
Under GIPS, what is a 'composite'?
Answer: An aggregation of all discretionary portfolios with similar investment mandates
Under GIPS, a composite is an aggregation of one or more portfolios managed according to a similar investment mandate, objective, or strategy.
Which performance metric measures risk-adjusted excess return per unit of total risk (standard deviation)?
Answer: Sharpe ratio
The Sharpe ratio divides a portfolio's excess return (above the risk-free rate) by its standard deviation, measuring reward per unit of total risk.
What is the primary purpose of an investment advisor claiming GIPS compliance?
Answer: To provide clients and prospects with a full and fair presentation of performance history
GIPS compliance ensures that performance is presented in a standardized, transparent manner, giving clients and prospects a complete and fair representation of the firm's track record.
An RIA calculates a composite return of 12% gross of fees and a benchmark return of 10%. What is the portfolio's gross value-added (active return)?
Answer: 2%
Active return (value-added) equals the portfolio return minus the benchmark return: 12% - 10% = 2%, representing the manager's contribution above the passive index.
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