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Cutting Out the Fat: Responding to the GIPS moratorium on hypothetical cash for carve-outs

By: Advent Software
Published: 3/1/2010

The use of carve-outs to highlight achievement is a common practice among investment management firms. A carve-out is essentially a selected portion of a larger portfolio that is removed for the purpose of demonstrating something (performance, experience, etc.).

Due to the fact that they are components of larger portfolios, carve-outs are subject to specific Global Investment Performance Standards (GIPS) regarding their management and financing. According to GIPS, carve-outs have always been required to be handled as their own, distinct portfolios, with their own financing. In the past, this financing could be hypothetical in nature, but that has recently changed. As of 2010, hypothetical cash is no longer an acceptable form of carve-out financing.

Explore the benefits and drawbacks of the five different strategic options available for investment management firms wishing to continue to use carve-outs within this new set of rules.


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