UMA Assets and the Global Investment Performance Standards (GIPS®)

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    In honor of the CFA GIPS Conference happening this week in Chicago, we”ve tapped our good friends at ACA Beacon Verification Services to provide some of their observations about GIPS:

    UMA Assets and the Global Investment Performance Standards (GIPS®)
    By Alicia Hyde
    Managing Director, ACA Beacon Verification Services

    At ACA Beacon, one of the most common questions our clients ask lately is “How do I handle UMA assets?” We’ve seen a growing percentage of managers moving towards these types of platforms, in which the manager provides its model to the sponsor but does not execute trades. The GIPS standards don’t opine on the treatment of these accounts, unfortunately, but there is some relevant guidance that may apply.

    The first of two questions to answer is should UMA assets be included in the firm definition, and thus the firm assets, for claiming GIPS compliance. In the GIPS handbook (the 2010 edition is still forthcoming, so I am referencing the 2005 edition, which is relevant nonetheless), page 67 contains a table that is helpful in determining what assets to include in the firm. It states that nondiscretionary assets where the firm has conditional trading authority but the strategy implementation is restricted should be included in the firm definition. However, assets within an advisory-only relationship, where the firm has no control of implementation of investment decisions and no trading authority, must be excluded from the firm definition and firm assets. Most UMA programs likely fall into the second category. Note that some of our clients have participated in programs that are somewhat of a hybrid of the two scenarios described above, that is, where the firm’s model is implemented without exception but the firm is not placing trades. In these cases, I have seen firms include UMA assets in their firm definition and firm assets. Please note that your assessment of whether to include UMA assets should be made on a case-by-case basis and I highly recommend discussing the decision with your verifier.

    If the UMA assets make it this far in our litmus test, the second question to answer is should they be included in a composite. In my experience, they are typically considered nondiscretionary and are not included in composites but there could be exceptions. Again, I recommend discussing the treatment of these assets with your verifier.

    Finally, it’s worth noting that if a firm determines its UMA assets to be advisory only and excluded from firm assets, it can still show entity assets, inclusive of UMAs, as supplemental information. For more details on presenting supplemental information, please see the GIPS Guidance Statement on the Use of Supplemental Information.