GIPS Firm Definition

Distinct Business Entity means, 'a unit, division, etc. that is organizationally and functionally segregated from other units, divisions, departments, that retains discretion over the assets it manages, and that should have autonomy over the investment decision-making process.  That specific 'unit' should then be able to qualify as a 'firm' for the purposes of GIPS compliance.  In addition, if the unit was incorporated as a separate entity, and had its own dedicated personnel, building, location, chain of command, decision making authority, etc, that further defines the 'firm' as a separate entity.  

Possible criteria for identifying a distinct business entity are a) the organization being a legal entity, b) having a distinct market or client type or c) using a separate and distinct investment process.  Some factors to consider/include:

1. All offices operating under the same brand name

2. Other names resulting from mergers/acquisitions trading under a different name for 'branding' purposes

3. Financial service holding companies defined as ONE global firm with various strategies, offices, legal entities, etc.

4. All offices operating under a 'similar name' with regional/country additions (ZCE Asset Management - Asia)

5. Investment managers in most countries MUST register with one or more regulators, therefore, one could use this registration as a firm definition. However, one must consider the manner to which they are holding themselves out to the public

• How the firm shows itself to the public

• The definition must be appropriate, rationale and fair

• Firms should adopt the broadest, most meaningful definition of the firm

• Firms must NOT use the definition of the firm as a substitute for defining composites (defining the firm too narrowly as to only encompass 1 product)

• How is the company registered with the SEC as a Register Investment Advisor? If the firm is big enough, they are registered at the Federal level. If not, they can be registered at the state level. There are no issues with GIPS compliance if the firm is registered at the state level

• All portfolios that have been managed within the chosen firm definition must be identified, both ative and terminated

• The Firm Definition DEFINES the universe of accounts that must be included in your total firm assets. In addition, the Firm Definition AUM should equate to your Firm ADV AUM, and be reported off of the same principles

• If a unit of a larger company specializes in providing services to Private, High Net Worth clients, and is marketed as a 'specialist' in providing such services, that might qualify as a Firm for GIPS purposes. In addition, if this part of the larger organization is also segregated out by legal subsidiary, had its own offices, staff, chain of command, etc, then this would ALSO qualify the firm as a separate GIPS firm

1. How does the firm market the products, collectively through one channel with a staff producing ALL of the marketing materials, or in separate offices?

2. Does each office have its own autonomous investment management, research, trading and administrative teams?

3. How do we define the Firm, in such a way, where we won’t have to re-define the Firm if the business changes?

4. How can we craft the Definition to state 'what the Firm actually is' vs just 'what is included in the Firm'?

5. Does your firm include Wrap accounts?

6. Are you coming into compliance for the first time, or are you re-defining your GIPS firm?

It is good to note the distinction between what a Legal Firm definition would be versus what you intend your GIPS firm definition to be.  They can be different, with different #s of accounts and different AUM figures.  However, ONLY the GIPS Firm AUM is to be represented on any GIPS compliant materials.  The Legal Firm AUM can be mentioned elsewhere, for Marketing reasons.

For a variety of reasons, your GIPS Firm definition 'may' be different than your Legal Firm definition.  Some of these reasons include:

• Parent company owns multiple sub-companies, and the Legal Firm Definition encompasses ALL of the sub-companies, whereas the GIPS Firm encompasses just one (or not all of them)

• Firm may have separate offices that operate independently of each other, managing and selling entirely different products. Therefore, Legal firm would encompass all, but GIPS would be separate

• There is the possibility that if separate, independent offices exist that these 'arms' of the Firm are not able to be GIPS compliant, threfore, they would be excluded/not included in the GIPS Firm

GIPS Firm Definition - Example 1

For the purpose of GIPS compliance, XYZ Investments, ‘XYZ’ is a limited liability company organized under the laws of the State of Delaware.  XYZ an independent investment management firm with a historic specialty in small and mid-cap stocks.  XYZ has one wholly-owned subsidiary, ABC Distributors, LLC, a limited purpose mutual fund broker-dealer organized solely to underwrite and distribute the XYZ Mutual Funds.

GIPS Firm Definition - Example 2

PMS Asset Management is a registered investment adviser under the Investment Advisers Act of 1940. PMS Asset Management is a privately held LLC, majority owned by KY LP, through its wholly-owned subsidiary, LMNOP Acquisition company.  PMS Asset Management was formed in May, 2005 to acquire substantially all of the assets and investment management contracts of STP LLC.

GIPS Firm Definition - Example 3

XYZ is a Delaware corporation that both directly and through its wholly owned subsidiaries, ABC Asset Management Ltd., DEF Advisors, Inc. and GHI Limited (collectively with JLK, the “Company”), is an asset management firm that provides investment management services to its clients. ABC Ltd. and DEF Advisors, Inc. are each registered as an investment adviser under the Investment Advisers Act of 1940, as amended. 

GIPS Firm Definition - Example 4

ABC Asset Management Ltd. also has been issued a license from the Authority for the Financial Markets in the Netherlands. In addition, xxx Limited is regulated by the Securities and Futures Commission in Hong Kong.  The Company may use the services of other affiliated or unaffiliated entities in carrying out its investment management responsibilities, including sub-advisory, research and marketing/client service services.

GIPS Firm Definition - Example 5

PMS is an independent investment advisory firm based in Anywhere, USA.  PMS provides investment advisory services as an advisor to investment companies and the management of separately managed accounts for retail and institutional clients.