Carve Outs
GIPS Carve Out Definition
A GIPS Carve-out is defined as a portion of a portfolio that is by itself representative of a distinct investment strategy. Carve Outs are used to create a track record from a broader mandate from a Multi-Strategy-type account to a narrower mandate. Because carve-outs represent only a portion of the broader, more diversified strategy, carve out returns are only valid if they are representative of what could have been achieved in a portfolio dedicated to the 'carved-out' strategy. The carved-out segment must be discretionary and structured materially the same as a portfolio dedicated to that strategy.
Previous GIPS Guidance existed from the CFA Institute and was issued starting January 1, 2010, which addressed both Pre and Post 2010 periods. The newly adopted Carve Out Requirements became effective January, 2020. Firms newly coming into compliance may choose to comply with the 2020 edition of the GIPS standards for all periods. There is no effective date for the new 2020 provisions addressing allocating cash to carve-outs, therefore a firm may synthetically allocate cash to carve-outs for all periods. There are no specific required methods to allocate cash.
GIPS Carve Out Requirements
GIPS Requirement 3.A.15
Any carve-out included in a composite must include cash and any related income. Cash may be accounted for separately or allocated synthetically to the carve-out on a timely and consistent basis.
GIPS Requirement 3.A.16
Any carve-out included in a composite must be representative of a standalone portfolio managed or intended to be managed according to that strategy.
GIPS Requirement 3.A.17
When the firm creates a carve-out of a particular strategy, allocates cash to the carve-out, and includes the carve-out in a composite, the firm must create carve-outs with allocated cash from all portfolios and portfolio segments within the firm managed to that strategy and must include those carve-outs with allocated cash in the composite.
GIPS Requirement 3.A.18
When the firm has or obtains standalone portfolios managed in the same strategy as the carve-outs with allocated cash, the firm must create a separate composite for the standalone portfolios.
GIPS Requirement 3.A.19
The firm must not combine different composites, pooled funds, or carve-outs to create a simulated strategy and present it as a composite.
*Information is created from a variety/multiple sources of CFA Institute materials.
