“The GIPS general provisions for real estate and for private equity require that both income and capital gains are included in the calculation and presentation of returns."

“The GIPS general provisions for real estate and for private equity require that both income and capital gains are included in the calculation and presentation of returns."

Determine whether Rose’s two comments on the GIPS standards are correct or incorrect.
A . Only statement 1 is correct.
B . Only statement 2 is correct.
C . Both statements are correct.

View Answer

Answer: A

Explanation:

Comment 1 is correct. The general provisions require that valuations take place monthly until 2010. After 2010, valuations must also occur anytime a large external cash flow occurs. For real estate, valuations should take place annually until 2008, after which quarterly valuations are required. For private equity, valuations should take place annually.

Comment 2 is incorrect. The performance standards in the general provisions allow either gross or net of

fees returns to be presented. The standards for real estate do not differ from the general provisions in this regard. For private equity, both net-of-fees and gross-of-fees return must be presented in the case of the composite since-inception internal rate of return. (Study Session 18, LOS 49.q)