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    Question 3 Aug 2024

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    Barno Nicholus
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    Question 3 Aug 2024

    Uploaded by

    Barno Nicholus
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    Question 3 Aug 2024

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    Question 3 Aug 2024

    Uploaded by

    Barno Nicholus
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    © All Rights Reserved
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    Question 3 ( a)

    Emilio Kipsang is the Principal Investment Officer of Arusha International Financial Advisor (AIFA) and has
    decided that AIFA will comply with Investment Performance Standards (IPS). Kipsang begins by reviewing all
    monthly composite calculations to ensure that AIFA has complied with all of the IPS composite calculation
    requirements. AIFA currently presents its investment performance using a composite, calculated on a monthly basis
    for each investment objective. AIFA’s growth equity composite consists of four client portfolios that are fully
    invested in large capitalisation growth equities as shown below:

    AIFA Growth equity composite Performance period: December 2023


    Client portfolio Beginning market value Ending market value Monthly return
    (Sh.“million”) (Sh.“million”) (%)
    A 125.0 126.5 1.20
    B 220.0 218.0 0.91
    C 68.0 69.8 1.65
    D 92.0 93.9 1.10
    Total 505.0 508.2

    Additional information:
    1. The monthly returns are gross of both management fees and transaction costs.
    2. Kipsang has decided that AIFA will obtain an independent third party verification prior to
    claiming compliance with IPS and has contracted a local firm to perform a verification of only the
    growth equity composite.

    Discuss whether AIFA can present each of the following in compliance with the account level calculation
    requirements of IPS:

    (i) Returns that are gross of management fees.

    (ii) Returns that are gross of transaction costs.

    (iii) Discuss whether AIFA could claim compliance with IPS without independent third-party
    verification.

    (iv) Explain whether Kipsang’s plan to obtain independent verification of only the growth equity
    composite would comply with IPS.

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