Misrepresentation of Investment Returns and GIPS Compliance

Very Hard Global Investment Performance Standards Key Concepts

The Global Investment Performance Standards (GIPS) are a set of standards that aim to ensure fair representation and full disclosure of investment performance. As a CFA charterholder, understanding these standards is critical for ensuring compliance and enhancing credibility in the investment management industry.

In a recent review, a fund manager misrepresented the returns of an investment composite by excluding underperforming investments from the performance calculations, claiming they didn't fit the investment strategy. This action raises questions regarding the adherence to GIPS. Which of the following statements is FALSE about GIPS compliance in this context?

GIPS requires all periods of performance to be included in a composite to ensure transparency and prevent selective reporting.

GIPS allows for the exclusion of underperforming investments from the performance calculation if they do not fit the stated investment strategy.

GIPS mandates that any composite must include all portfolios that were part of the investment strategy during the evaluation period.

Hint

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