Global Investment Performance Standards

Correct Answer: Recalculate the returns for the fixed income composites using the TWR methodology to ensure consistency with the equity composites.

The firm should recalculate the returns for the fixed income composites using the time-weighted return (TWR) methodology to ensure consistency with the equity composites. The Global Investment Performance Standards (GIPS) require firms to use consistent return calculation methodologies for all portfolios within a composite. Since the firm currently uses TWR for its equity composites, it should also use TWR for its fixed income composites to maintain compliance with GIPS. Using different return calculation methodologies for different composites within the firm, such as continuing to use money-weighted returns (MWR) for fixed income composites while using TWR for equity composites, would violate the GIPS requirement for consistency. Recalculating the returns for the equity composites using the MWR methodology is not the appropriate solution, as TWR is generally considered the preferred methodology for calculating returns in compliance with GIPS.

Correct Answer: The firm must provide a compliant presentation that includes all required disclosures and relevant composite performance information.

The correct answer is that the firm must provide a compliant presentation that includes all required disclosures and relevant composite performance information. The Global Investment Performance Standards (GIPS) are a set of voluntary standards that provide a framework for investment managers to present their performance to prospective clients in a fair and consistent manner. GIPS require firms to include all required disclosures and relevant composite performance information in their compliant presentations. The other two answers are incorrect because they suggest that firms have discretion over whether to include all required disclosures or relevant composite performance information, which is not the case under GIPS. Firms must include both in order to be fully compliant with the standards.

Correct Answer: The firm must present separate composite performance for real estate and private equity investments.

The firm must present separate composite performance for real estate and private equity investments. According to the Global Investment Performance Standards (GIPS), firms are required to create separate composites for portfolios with different investment strategies or asset classes. Real estate and private equity investments have distinct characteristics and valuation methodologies, and therefore, must be presented in separate composites to provide a fair and accurate representation of performance. The other two answers are incorrect because: - Combining real estate and private equity investments into a single composite would not provide a meaningful comparison of performance, given their different nature and valuation methods. - While consistency in valuation methodologies is important within each composite, GIPS does not require firms to use the same valuation methodology across different asset classes or investment strategies.