Performance Perspectives Blog

Terminating composites

by | Apr 22, 2010

A client who complies with the Global Investment Performance Standards (GIPS(R)) mentioned that they have two composites which are so close that they’d like to combine them and then terminate the old composites; can they?

A firm can always create new composites, provided they abide by all the rules. In this case, the combination would create a third composite, which is the aggregation of the two that are close, thus all accounts that are in these two composites will now also be in the new one. But now the firm has three composites when they once only had two; can they terminate the two old ones now that they’ve created a combination of them?

Unfortunately, there is nothing in GIPS that addresses this, but I have it on good authority that yes, a firm can terminate composites! Recall that firms must have all actual, fee-paying, discretionary accounts in at least one composite. And so, as long as this rule will remain, then a firm can terminate a composite that it no longer needs. This composite name and description must be included on the firm’s list and description of composites (soon to be list of descriptions) for at least five years after it’s terminated. I’d also advise the firm to include an explanation as to why the composite was terminated in the composite presentation as well as the firm’s policies.

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