RIA Performance Reporting & Benchmarking

Question 1

What does GIPS stand for in the context of investment performance reporting?

Accepted Answer

Global Investment Performance Standards

Answer

GIPS stands for Global Investment Performance Standards, a set of ethical standards for calculating and presenting investment performance created by the CFA Institute.

Question 2

Which return calculation method is required by GIPS because it eliminates the distorting effects of external cash flows?

Accepted Answer

Time-weighted rate of return

Answer

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.

Question 3

In investment management, what is a benchmark primarily used for?

Accepted Answer

Comparing and evaluating a portfolio manager's performance

Answer

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.

Question 4

Under GIPS, what is a 'composite'?

Accepted Answer

An aggregation of all discretionary portfolios with similar investment mandates

Answer

Under GIPS, a composite is an aggregation of one or more portfolios managed according to a similar investment mandate, objective, or strategy.

Question 5

Which performance metric measures risk-adjusted excess return per unit of total risk (standard deviation)?

Accepted Answer

Sharpe ratio

Answer

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.

(RIA) Registered Investment Advisor Practice Test

(RIA) Registered Investment Advisor Practice Test

RIA Performance Reporting & Benchmarking