2008 Expert Exam Syllabus

 

Study Session I: Professional Ethics

The candidate should be able to:

1. state the provisions of the CIPM Association Code and Standards;
2. demonstrate the ability to apply the Code and Standards in specific circumstances;
3. evaluate procedures for complying with the Standards;
4. explain the individual’s responsibilities as a candidate or member, including references to membership in the CIPM Association, the CIPM designation, and candidacy in the CIPM program; and
5. identify violations of the Code and Standards and describe appropriate corrective actions.

 

Study Session II: Rate-of-Return Calculations

The candidate should be able to:

1. compare time-weighted and money-weighted return calculation methodologies; and
2. calculate annualized time-weighted and money-weighted rates of return.
3. explain the concept of returns as wealth multipliers and devastators with order, magnitude, and direction;
4. calculate the return required to restore the beginning market value of an investment after a given series of positive and negative returns or to achieve a target return for the entire measurement period;
5. state the implications of return compounding for investment management;
6. adjust beginning-of-period and end-of-period asset market values and intraperiod income to reflect the impact of futures contracts;
7. calculate notional stock and cash market values and returns, and hedged portfolio returns for portfolios containing futures contracts;
8. distinguish between the full exposure and partial exposure methods of valuing options;
9. adjust beginning-of-period and end-of-period asset market values and intraperiod income to reflect the impact of options;
10. calculate notional stock and cash market values and returns, and hedged portfolio returns for portfolios containing options;
11. demonstrate the calculation of base currency returns for investments denominated in local currencies;
12. calculate the capital gain, yield, and currency components of a total return expressed in base currency;
13. explain the effect of compounding currency and market movements on a foreign investment;
14. identify and characterize common causes of discrepancies between managers’ and custodians’ accounting data; and
15. summarize the issues that affect prior period adjustments.

Study Session III: Benchmarks

The candidate should be able to:

1. list and explain the uses of benchmarks;
2. justify the use of capitalization-weighting in benchmark construction;
3. describe the principal trade-offs in building and maintaining broad-cap indexes of the U.S. equity market;
4. explain and evaluate the author’s argument that portfolio managers should seek to maximize the information ratio, defined as pure alpha per unit of active risk;
5. summarize the historical development of benchmarking in the context of modern portfolio theory (MPT);
6. evaluate arguments in favor of liability-based vs. capitalization-weighted benchmarks;
7. explain the concept of normal or neutral weights;
8. distinguish between published benchmark-centered investment disciplines and manager strategy investment disciplines;
9. explain why strategy benchmarks are more appropriate for manager strategy investment disciplines;
10. describe benchmark selection/creation and risk controls in the general framework of an institutional investment process; and
11. explain the impact of benchmark selection on attribution analysis and the calculation of tracking error and information ratios.

 

Study Session IV: Risk Measures

The candidate should be able to:

1. explain the concepts of annualized standard deviation, non-normal distribution, semi-deviation and minimum acceptable return;
2. calculate and evaluate shortfall risk, expected downside value, and downside deviation;
3. calculate and evaluate tracking risk; and
4. calculate, compare, and contrast the Sharpe ratio,  Sortino ratio, and information ratio;
5. evaluate the principles underlying the Capital Asset Pricing Model;
6. critique the applicability of standard deviation in measuring the investment risk of a hedge fund;
7. calculate and explain the concept of maximum drawdown;
8. calculate, compare, and contrast the Calmar ratio and Sterling ratio; and
9. explain the qualitative factors that may be necessary to supplement quantitative analysis in an appraisal of hedge fund risks.

Study Session V: Performance Attribution (A) – Equities and Futures

The candidate should be able to:

1. calculate the value-added by asset allocation, security selection, and interaction using the Brinson and Fachler arithmetic attribution model;
2. calculate the value-added by asset allocation and security selection using geometric excess return attribution;
3. state the advantages and disadvantages of buy-and-hold attribution and transaction-based attribution;
4. calculate and explain multiperiod arithmetic attribution factors using the smoothing algorithms devised by Cariño and GRAP;
5. calculate and explain multiperiod attribution effects using geometric excess return attribution;
6. compare and contrast the arithmetic and geometric approaches to performance attribution;
7. calculate and explain the asset allocation, security selection, and currency management effects using Karnosky and Singer’s approach to multicurrency attribution;
8. calculate and explain naïve currency attribution effects using geometric multicurrency attribution;
9. explain selling securities short and purchasing securities on margin;
10. calculate and explain security-level and sector-level weights and returns with short positions;
11. contrast the impact on long and short portfolios of underweighting and overweighting sectors relative to the benchmark;
12. calculate and explain benchmark-relative attribution analysis for long/short strategies, and evaluate the results;
13. calculate and explain attribution analysis for market-neutral strategies benchmarked against the risk-free rate, and evaluate the results;
14. explain the use of notional adjustments in attribution analysis for portfolios containing futures; and
15. calculate attribution effects for a portfolio containing futures contracts.

 

Study Session VI: Performance Attribution (B) – Fixed-Income

The candidate should be able to:

1. distinguish between external market conditions and the manager’s investment decisions;
2. distinguish between the two components of the effect of the external macro interest rate environment: interest rate level and interest rate change;
3. distinguish among the three components of the management contribution: the returns from maturity management, sector/quality management (also called spread/quality management), and security selection;
4. calculate and evaluate fixed-income portfolio performance, given the results of an attribution analysis conducted in the Fong-Pearson-Vasicek framework;
5. state the critical differences between stocks and bonds, and compare and contrast the appropriate performance attribution approaches for equity and fixed-income portfolios;
6. explain the sources of fixed-income returns in the Campisi framework;
7. calculate the income return and the treasury, spread, and selection effects of a fixed-income portfolio in comparison with an appropriate benchmark;
8. evaluate portfolio performance, given the results of an attribution analysis conducted in the Campisi framework;
9. explain how van Breukelen uses reference portfolios in fixed-income attribution analysis;
10. calculate the contributions to value-added returns from the overall duration decision, market allocation, issue selection, and currency allocation; and
11. evaluate portfolio performance, given the results of an attribution analysis conducted in the van Breukelen framework.

 

Study Session VII: Performance Appraisal

The candidate should be able to:

1. explain the advantages of independent rate-of-return calculations;
2. demonstrate the use of performance triangles vs. benchmarks in assessing a manager’s track record;
3. explain how period-to-period comparisons of portfolio characteristics can be used in monitoring a manager’s implementation of an investment strategy;
4. explain the purpose and scope of regular organizational review meetings with managers;
5. evaluate circumstances in which it may be appropriate to terminate a manager;
6. distinguish between “alpha generators” and “alpha pretenders”;
7. define the concept of an investment philosophy;
8. demonstrate how to analyze a manager’s investment philosophy; and
9. judge whether specific managers pass the “investment philosophy test”.

 

Study Session VIII: Foundations of the GIPS Standards

The candidate should be able to:

1. characterize the role of the GIPS Executive Committee and its standing subcommittees;
2. describe and explain the fundamental responsibilities of the firm with regard to the GIPS standards;
3. evaluate definitions of the firm and determine if they comply with the GIPS standards;
4. evaluate the firm’s definition of discretionary assets;
5. calculate total firm assets;
6. judge whether claims of compliance with the GIPS standards are valid and/or correctly worded;
7. evaluate applications of the GIPS standards related to input data;
8. demonstrate the calculation and presentation of portfolio and composite returns in accordance with the GIPS standards;
9. distinguish between “large” and “significant” external cash flows, and judge the appropriateness of excluding portfolios from composites when significant external cash flows occur; and
10. demonstrate and evaluate the treatment of fees in portfolio return calculations and performance presentations.

Study Session IX: Composites

The candidate should be able to:

1. analyze composites and judge if they are constructed and maintained in accordance with the GIPS standards;
2. evaluate the classification of portfolios as discretionary or non-discretionary;
3. evaluate composite definitions and descriptions;
4. judge the appropriateness of including portfolios in defined composites;
5. determine when portfolios should be included in or excluded from composites and whether portfolios should be switched from one composite to another;
6. demonstrate and evaluate the application of the GIPS standards related to carve-out segments; and
7. apply the GIPS standards to composites that have been terminated or merged with other composites.

 

Study Session X: Disclosures and Presentations

The candidate should be able to:

1. formulate policies and procedures in accordance with the GIPS standards related to disclosures and performance presentations;
2. identify errors and omissions in disclosures and presentations, and recommend changes that would bring them into compliance with the GIPS standards;
3. evaluate the portability of performance track records from a past firm or affiliation;
4. determine whether information should be considered supplemental information for the purpose of GIPS compliance; and
5. explain how the GIPS Guidance Statement on supplemental information applies in given cases.

 

Study Session XI: Real Estate and Private Equity

The candidate should be able to:

1. determine whether investments are subject to the provisions of the GIPS standards related to real estate;
2. judge whether real estate composites are constructed in compliance with the GIPS standards;
3. evaluate the classification of real estate portfolios as discretionary or non-discretionary;
4. explain the GIPS standards related to the sources and frequency of real estate valuations;
5. explain and demonstrate the calculation of real estate returns, including the income return and capital return components of total return, in accordance with the GIPS standards;
6. identify errors and omissions in real estate disclosures and presentations, and recommend changes to bring them into compliance with the GIPS standards;
7. explain the private equity valuation principles;
8. judge whether private equity composites are constructed in compliance with the GIPS standards;
9. explain the requirements for calculation and presentation of the Since Inception Internal Rate of Return (SI-IRR);
10. explain and calculate the investment multiple (TVPI), realization multiple (DPI), ratio of paid-in capital to committed capital (PIC), and ratio of residual value to paid-in capital (RVPI); and
11. identify errors and omissions in private equity disclosures and performance presentations, and recommend changes to bring them into compliance with the GIPS standards.

 

Study Session XII: Wrap Fee/SMA Accounts

The candidate should be able to:

1. explain the presentation and reporting requirements of the GIPS standards related to wrap fee/SMA portfolios;
2. characterize the performance presentation challenges faced by investment managers managing wrap fee/SMA portfolios;
3. determine if the wrap fee/SMA provisions of the GIPS standards are applicable in given cases;
4. explain the guiding principles for determining how to apply the GIPS standards for wrap fee/SMA portfolios;
5. describe the advantages and disadvantages of defining the firm so as to include or exclude wrap fee/SMA portfolios;
6. explain the firm’s alternatives for meeting the recordkeeping requirements of the GIPS standards as they apply to wrap fee/SMA portfolios;
7. explain the firm’s alternatives in constructing composites for performance presentations to prospective wrap fee/SMA clients;
8. differentiate performance presentations to wrap fee/SMA prospects and existing wrap fee/SMA sponsors;
9. calculate composite returns that include wrap fee/SMA portfolios for presentation to prospective and existing clients; and
10. identify errors and omissions in performance presentations of composites that include wrap fee/SMA portfolios, and recommend the changes that would bring the performance presentations into compliance with the GIPS standards.

 

Study Session XIII: Verification and Advertising

The candidate should be able to:

1. determine whether a verifier has complied with the required pre-verification and verification procedures set forth in the GIPS standards;
2. distinguish between firm-wide verification and detailed examinations of investment performance presentations;
3. explain the guiding principles for assessing verifier independence, and judge whether specific non-verification services are likely to impair the independence of verifiers;
4. define advertisements;
5. determine whether advertisements comply with the GIPS Advertising Guidelines; and
6. recommend changes that would bring noncompliant advertisements into compliance with the GIPS Advertising Guidelines.