This morning's Wall Street Journal article on PPIP and its unpopularity drives home an upcoming difficulty in the GIPS 2010 changes. GIPS compliant firms will be required to value all portfolios on the date of large cash flows.
The banks are refusing to sell its toxic assets under the PPIP for fear of disclosing its market value and changing the values being shown on their books. Without the market, values for these securities is left to more subjective measures. Yes, even a discounted cash flow model is subjective thanks to the assumption the security will exist until maturity with principal repayment.
How will the GIPS compliant firm determine price in the event one of their portfolios has a large cash flow and these kinds of toxic debt?
Monday, June 29, 2009
Friday, June 26, 2009
How A GIPS Focused Person Reads The News
GIPS provides the industry standard for performance measurement, calculation and presentation. When one believes in the principles, he can't help those beliefs from framing his interpretation of the news.
Yesterday's Wall Street Journal had a small article on the decrease in assets of wealth-management firms. (Personal Finance, D4). To quote, "The 15 largest firms surveyed saw the dollars they manage fall by almost a quarter in 2008..."
As a performance professional and GIPS adherent, my first thought was those 15 need to increase assets under management by 33% to break even. The more important one, though, was to wonder how the calculation was made.
How were the cash flows, presumably negative thanks to client withdrawals, accounted for? How did a 25% decrease in AUM account for the market returns for 2008?
None of this is meant to claim Bank of America Corp.'s Merrill Lynch Global Wealth Management Group and Capgemini Group did not account for this concerns. It is just an example of how the belief in GIPS can inform one's understanding of the printed word.
Yesterday's Wall Street Journal had a small article on the decrease in assets of wealth-management firms. (Personal Finance, D4). To quote, "The 15 largest firms surveyed saw the dollars they manage fall by almost a quarter in 2008..."
As a performance professional and GIPS adherent, my first thought was those 15 need to increase assets under management by 33% to break even. The more important one, though, was to wonder how the calculation was made.
How were the cash flows, presumably negative thanks to client withdrawals, accounted for? How did a 25% decrease in AUM account for the market returns for 2008?
None of this is meant to claim Bank of America Corp.'s Merrill Lynch Global Wealth Management Group and Capgemini Group did not account for this concerns. It is just an example of how the belief in GIPS can inform one's understanding of the printed word.
Thursday, June 25, 2009
Does The Health Care Industry Need a GIPS?
The referenced article shows the ways one industry cries out to be regulated - even if it doesn't realize that is what it is doing. GIPS performance standards fill that void for the investment community by providing a standard way to calculate and present performance.
One can't simply eliminate an account or two from a composite because its return was deemed an "outlier" (read: makes performance look bad) without justifiable, documented policies that are applied the same way to all accounts.
Senate Panel Says Health Insurers Underpay Claims - WSJ.com:
"Committee investigators found that Ingenix developed its payment models based on claims data provided by its customers, the insurance companies.
A committee aide said those companies sometimes would “scrub” the data sent to Ingenix—throwing out outlying high costs. Ingenix then would use questionable statistical models to come to its own rate estimates."
One can't simply eliminate an account or two from a composite because its return was deemed an "outlier" (read: makes performance look bad) without justifiable, documented policies that are applied the same way to all accounts.
Senate Panel Says Health Insurers Underpay Claims - WSJ.com:
"Committee investigators found that Ingenix developed its payment models based on claims data provided by its customers, the insurance companies.
A committee aide said those companies sometimes would “scrub” the data sent to Ingenix—throwing out outlying high costs. Ingenix then would use questionable statistical models to come to its own rate estimates."
What would "Create and Save" Look Like Without GIPS?
Yesterday's Wall Street Journal had a brief article describing the states' instructions on how to count a job as "created or saved" under the stimulus bill. Basically, a state need only use its best judgment. Not exactly helpful for those states concerned about accurate measurement and a worry for those of a more cynical bent.
For those of us who live and breathe fair and accurate performance measurement, as laid out by the Global Investment Performance Standards (GIPS), this guidance on "created or saved" is almost heretical. An investment performance measurement equivalent would be arbitrary inception and closed dates, a whimsical inclusion/exclusion policy, and/or capricious cash flow accounting.
For those of us who live and breathe fair and accurate performance measurement, as laid out by the Global Investment Performance Standards (GIPS), this guidance on "created or saved" is almost heretical. An investment performance measurement equivalent would be arbitrary inception and closed dates, a whimsical inclusion/exclusion policy, and/or capricious cash flow accounting.
Wednesday, June 24, 2009
GIPS 2010
There are several changes coming to composite presentations and Disclosures. Is your firm ready?
Contact us for a free consultation.
Contact us for a free consultation.
Subscribe to:
Posts (Atom)