Best Practices for Creating and Maintaining Policies and ... - GIPS

Example policy:Composites include new portfolios at the beginning of the first full month under management.Terminated portfolios are included in the historical performance of appropriate compositesthrough the last full month under management. Portfolios that switch composites due tostrategy changes are removed from composites at the end of the last month under the oldmandate and are eligible for re-inclusion in composites at the beginning of the first fullmonth after the change.Some (but not all) of the firm’s composites have established minimum asset levels forportfolios to be included or policies for temporarily removing portfolios that experiencesignificant cash flows. These minimum asset levels and significant cash flow policies areoutlined in the firm’s composite definitions, outlined in Appendix A.Procedures to consider:• Firms should establish procedures to ensure that all fee-paying discretionary portfoliosare assigned to the appropriate composites. This should include periodic evaluations ofthe full list of portfolios within the scope of the firm definition, validating thediscretionary status and composite assignment (if applicable) for each portfolio, andreconciling between the portfolios in composites and total firm assets.• Firms should monitor new and terminated portfolios, as well as strategy changes. Firmsshould have procedures to be notified of these events and could build exception reports totrack these items. Procedures should also address the necessary communication of clientdirected portfolio changes from those responsible for interacting directly with clients tothose responsible for maintaining composites.• Composite dispersion should be monitored and an outlier analysis could be performed toanalyze the appropriateness of the inclusion of portfolios in each composite.• Firms should establish procedures for reviewing portfolios that may fall below prescribedminimum asset levels or experience significant cash flows and removing such portfoliosfrom composites on a consistent basis.Helpful hints:• Firms should consider a grace period policy prior to including portfolios in compositesbased on when a portfolio manager can fully implement the intended investmentmandate, objective or strategy. The grace period may vary by composite.• If there is an unusual delay before including a new portfolio in a composite, it is goodpractice to document the reasons for the delay.• Closed portfolios should be excluded from composites based on the date the firm wasinstructed to change the implementation of the portfolio’s strategy such that it was noBest Practices for Creating and Maintaining GIPS Policies & Procedures Page 11