We are putting the “final touches” on The Journal of Performance Measurement’s (R) Supplement issue, that will include summaries of two of our surveys: attribution and presentation standards. While writing my letter (as publisher), I realized that it’s been 20 years since the AIMR-PPS(R) was published. I’m not aware that this met with any fanfare, though it should have. It’s clear that this publication took what the FAF (Financial Analysts Federation) dreamed of in 1986 and made it a reality; it also set the groundwork for a global standard, that became a reality in 1999 with the publication of GIPS(R).

I was sent a question yesterday regarding GIPS, dealing with the frequency of mutual funds being included in composites. I think there are two parts to this question.

First, should mutual funds be included in a firm’s definition? In my view there is no reason why it shouldn’t. It isn’t difficult to get these accounts into composites (either as standalone, combined with other funds that are investing in the same strategy, or with separate accounts being managed to the fund’s strategy) and it increases the firm’s assets under management.

And so, if you agree, then the second question is, should the funds be in a composite? It makes no sense to ask this question if the funds are not part of the firm definition, right? And so, if they are, they must be in a composite. The only question is, do you combine them with separate accounts that are managed to the same strategy?

Reason for: it increases the composite’s assets.

Reason against: given that funds typically experience daily cash flows, their performance may be materially different from that of the individual accounts, so separating them may make sense.

And so, it’s up to you whether to combine.

Thoughts?  Further questions or comments?