giáo trình CFA hay nhất , dễ hiểu nhất bằng tiếng Anh cho các bạn nào muốn nhập môn CFA hoặc có đam mê trong lĩnh vực chứng khoán Các bài đọc trong cuốn sách này trình bày một khuôn khổ cho hành vi đạo đức trong nghề đầu tư bằng cách tập trung vào Viện Mã CFA đạo đức và chuẩn mực ứng xử chuyên nghiệp cũng như các tiêu chuẩn hiệu suất đầu tư toàn cầu (GIPS®). Các nguyên tắc và hướng dẫn được trình bày trong các tiêu chuẩn Viện CFA Thực hành Handbook (Sổ tay) tạo thành cơ sở cho Viện CFA tự điều tiết chương trình để duy trì các tiêu chuẩn chuyên nghiệp cao nhất trong số các học viên đầu tư. Hướng dẫn trong Cẩm nang giải quyết các ứng dụng thực tế của các Quy tắc đạo đức và chuẩn mực ứng xử chuyên nghiệp. Hướng dẫn mở rộng theo mục đích và phạm vi của từng chuẩn mực, tặng quà các thủ tục cho việc tuân thủ khuyến cáo, và cung cấp các ví dụ về các tiêu chuẩn trong thực tế.
E t h i cal a n d P r ofess i o n al S ta n d a r d s STUDY SESSION Ethical and Professional Standards The readings in this study session present a framework for ethical conduct in the investment profession by focusing on the CFA Institute Code of Ethics and Standards of Professional Conduct as well as the Global Investment Performance Standards (GIPS®) The principles and guidance presented in the CFA Institute Standards of Practice Handbook (Handbook) form the basis for the CFA Institute self-regulatory program to maintain the highest professional standards among investment practitioners “Guidance” in the Handbook addresses the practical application of the Code of Ethics and Standards of Professional Conduct The guidance expands upon the purpose and scope of each standard, presents recommended procedures for compliance, and provides examples of the standard in practice The Global Investment Performance Standards (GIPS) facilitate efficient comparison of investment performance across investment managers and country borders by prescribing methodology and standards that are consistent with a clear and honest presentation of returns Having a global standard for reporting investment performance to prospective clients minimizes the potential for ambiguous or misleading presentations READING ASSIGNMENTS Reading Code of Ethics and Standards of Professional Conduct Standards of Practice Handbook, Eleventh Edition Reading Guidance for Standards I–VII Standards of Practice Handbook, Eleventh Edition Reading Introduction to the Global Investment Performance Standards (GIPS) Reading Global Investment Performance Standards (GIPS) Copyright © 2014 CFA Institute R E A DIN G Code of Ethics and Standards of Professional Conduct LEARNING OUTCOMES Mastery The candidate should be able to: a describe the structure of the CFA Institute Professional Conduct Program and the process for the enforcement of the Code and Standards; b state the six components of the Code of Ethics and the seven Standards of Professional Conduct; c explain the ethical responsibilities required by the Code and Standards, including the sub-sections of each Standard PREFACE The Standards of Practice Handbook (Handbook) provides guidance to the people who grapple with real ethical dilemmas in the investment profession on a daily basis; the Handbook addresses the professional intersection where theory meets practice and where the concept of ethical behavior crosses from the abstract to the concrete The Handbook is intended for a diverse and global audience: CFA Institute members navigating ambiguous ethical situations; supervisors and direct/indirect reports determining the nature of their responsibilities to each other, to existing and potential clients, and to the broader financial markets; and candidates preparing for the Chartered Financial Analyst (CFA) examinations Recent events in the global financial markets have tested the ethical mettle of financial market participants, including CFA Institute members The standards taught in the CFA Program and by which CFA Institute members and candidates must abide represent timeless ethical principles and professional conduct for all market conditions Through adherence to these standards, which continue to serve as the model for ethical behavior in the investment professional globally, each market participant does his or her part to improve the integrity and efficient operations of the financial markets The Handbook provides guidance in understanding the interconnectedness of the aspirational and practical principles and provisions of the Code of Ethics and Standards of Professional Conduct (Code and Standards) The Code contains high- level aspirational ethical principles that drive members and candidates to create a Copyright © 2014 CFA Institute Reading ■ Code of Ethics and Standards of Professional Conduct positive and reputable investment profession The Standards contain practical ethical principles of conduct that members and candidates must follow to achieve the broader industry expectations However, applying the principles individually may not capture the complexity of ethical requirements related to the investment industry The Code and Standards should be viewed and interpreted as an interwoven tapestry of ethical requirements Through members’ and candidates’ adherence to these principles as a whole, the integrity of and trust in the capital markets are improved Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct Generally, changes to the Code and Standards over the years have been minor CFA Institute has revised the language of the Code and Standards and occasionally added a new standard to address a prominent issue of the day For instance, in 1992, CFA Institute added the standard addressing performance presentation to the existing list of standards Major changes came in 2005 with the ninth edition of the Handbook CFA Institute adopted new standards, revised some existing standards, and reorganized the standards The revisions were intended to clarify the requirements of the Code and Standards and effectively convey to its global membership what constitutes “best practice” in a number of areas relating to the investment profession The Code and Standards must be regularly reviewed and updated if they are to remain effective and continue to represent the highest ethical standards in the global investment industry CFA Institute strongly believes that revisions of the Code and Standards are not undertaken for cosmetic purposes but to add value by addressing legitimate concerns and improving comprehension Changes to the Code and Standards have far-reaching implications for the CFA Institute membership, the CFA Program, and the investment industry as a whole CFA Institute members and candidates are required to adhere to the Code and Standards In addition, the Code and Standards are increasingly being adopted, in whole or in part, by firms and regulatory authorities Their relevance goes well beyond CFA Institute members and candidates Standards of Practice Handbook The periodic revisions of the Code and Standards have come in conjunction with updates of the Standards of Practice Handbook The Handbook is the fundamental element of the ethics education effort of CFA Institute and the primary resource for guidance in interpreting and implementing the Code and Standards The Handbook seeks to educate members and candidates on how to apply the Code and Standards to their professional lives and thereby benefit their clients, employers, and the investing public in general The Handbook explains the purpose of the Code and Standards and how they apply in a variety of situations The sections discuss and amplify each standard and suggest procedures to prevent violations Examples in the “Application of the Standard” sections are meant to illustrate how the standard applies to hypothetical but factual situations The names contained in the examples are fictional and are not meant to refer to any actual person or entity Unless otherwise stated (e.g., one or more people specifically identified), individuals in each example are CFA Institute members and holders of the CFA designation Because factual circumstances vary so widely and often involve gray areas, the explanatory material and examples are not intended to be all inclusive Many examples set forth in the application sections involve standards that have legal counterparts; members Preface are strongly urged to discuss with their supervisors and legal and compliance departments the content of the Code and Standards and the members’ general obligations under the Code and Standards CFA Institute recognizes that the presence of any set of ethical standards may create a false sense of security unless the documents are fully understood, enforced, and made a meaningful part of everyday professional activities The Handbook is intended to provide a useful frame of reference that suggests ethical professional behavior in the investment decision-making process This book cannot cover every contingency or circumstance, however, and it does not attempt to so The development and interpretation of the Code and Standards are evolving processes; the Code and Standards will be subject to continuing refinement Summary of Changes in the Eleventh Edition The comprehensive review of the Code and Standards in 2005 resulted in principle requirements that remain applicable today The review carried out for the eleventh edition focused on market practices that have evolved since the tenth edition Along with updates to the guidance and examples within the Handbook, the eleventh edition includes an update to the Code of Ethics that embraces the members’ role of maintaining the social contract between the industry and investors Additionally, there are three changes to the Standards of Professional Conduct, which recognize the importance of proper supervision, clear communications with clients, and the expanding educational programs of CFA Institute Inclusion of Updated CFA Institute Mission The CFA Institute Board of Governors approved an updated mission for the organization that is included in the Preamble to the Code and Standards The new mission conveys the organization’s conviction in the investment industry’s role in the betterment of society at large Mission: To lead the investment profession globally by promoting the highest standards of ethics, education, and professional excellence for the ultimate benefit of society Updated Code of Ethics Principle One of the bullets in the Code of Ethics was updated to reflect the role that the capital markets have in the greater society As members work to promote and maintain the integrity of the markets, their actions should also help maintain the social contract with investors Old: Promote the integrity of and uphold the rules governing capital markets New: Promote the integrity and viability of the global capital markets for the ultimate benefit of society Reading ■ Code of Ethics and Standards of Professional Conduct New Standard Regarding Responsibilities of Supervisors [IV(C)] The standard for members and candidates with supervision or authority over others within their firms was updated to bring about improvements in preventing illegal and unethical actions from occurring The prior version of Standard IV(C) focused on the detection and prevention of violations The updated version stresses broader compliance expectations, which include the detection and prevention aspects of the original version Old: Members and Candidates must make reasonable efforts to detect and prevent violations of applicable laws, rules, regulations, and the Code and Standards by anyone subject to their supervision or authority New: Members and Candidates must make reasonable efforts to ensure that anyone subject to their supervision or authority complies with applicable laws, rules, regulations, and the Code and Standards Additional Requirement under the Standard for Communication with Clients and Prospective Clients [V(B)] Given the constant development of new and exotic financial instruments and strategies, the standard regarding communicating with clients now includes an implicit requirement to discuss the risks and limitations of recommendations being made to clients The new principle and related guidance take into account the fact that levels of disclosure will differ between products and services Members and candidates, along with their firms, must determine the specific disclosures their clients should receive while ensuring appropriate transparency of the individual firms’ investment processes Addition: Disclose to clients and prospective clients significant limitations and risks associated with the investment process Modification to Standard VII(A) Since this standard was developed, CFA Institute has launched additional educational programs The updated standard not only maintains the integrity of the CFA Program but also expands the same ethical considerations when members or candidates participate in such programs as the CIPM Program and the Claritas Investment Certificate Whether participating as a member assisting with the curriculum or an examination or as a sitting candidate within a program, we expect them to engage in these programs as they would participate in the CFA Program Old: Conduct as Members and Candidates in the CFA Program Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of the CFA examinations Preface New: Conduct as Participants in CFA Institute Programs Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of CFA Institute programs General Guidance and Example Revision The guidance and examples were updated to reflect practices and scenarios applicable to today’s investment industry Two concepts that appear frequently in the updates in this edition relate to the increased use of social media for business communications and the use of and reliance on the output of quantitative models The use of social media platforms has increased significantly since the publication of the tenth edition And although financial modeling is not new to the industry, this update reflects upon actions that are viewed as possible contributing factors to the financial crises of the past decade CFA Institute Professional Conduct Program All CFA Institute members and candidates enrolled in the CFA Program are required to comply with the Code and Standards The CFA Institute Board of Governors maintains oversight and responsibility for the Professional Conduct Program (PCP), which, in conjunction with the Disciplinary Review Committee (DRC), is responsible for enforcement of the Code and Standards The DRC is a volunteer committee of CFA charterholders who serve on panels to review conduct and partner with Professional Conduct staff to establish and review professional conduct policies The CFA Institute Bylaws and Rules of Procedure for Professional Conduct (Rules of Procedure) form the basic structure for enforcing the Code and Standards The Professional Conduct division is also responsible for enforcing testing policies of other CFA Institute education programs as well as the professional conduct of Certificate in Investment Performance Measurement (CIPM) certificants Professional Conduct inquiries come from a number of sources First, members and candidates must self-disclose on the annual Professional Conduct Statement all matters that question their professional conduct, such as involvement in civil litigation or a criminal investigation or being the subject of a written complaint Second, written complaints received by Professional Conduct staff can bring about an investigation Third, CFA Institute staff may become aware of questionable conduct by a member or candidate through the media, regulatory notices, or another public source Fourth, candidate conduct is monitored by proctors who complete reports on candidates suspected to have violated testing rules on exam day Lastly, CFA Institute may also conduct analyses of scores and exam materials after the exam, as well as monitor online and social media to detect disclosure of confidential exam information When an inquiry is initiated, the Professional Conduct staff conducts an investigation that may include requesting a written explanation from the member or candidate; interviewing the member or candidate, complaining parties, and third parties; and collecting documents and records relevant to the investigation Upon reviewing the material obtained during the investigation, the Professional Conduct staff may conclude the inquiry with no disciplinary sanction, issue a cautionary letter, or continue proceedings to discipline the member or candidate If the Professional Conduct staff believes a violation of the Code and Standards or testing policies has occurred, the member or candidate has the opportunity to reject or accept any charges and the proposed sanctions 10 Reading ■ Code of Ethics and Standards of Professional Conduct If the member or candidate does not accept the charges and proposed sanction, the matter is referred to a panel composed of DRC members Panels review materials and presentations from Professional Conduct staff and from the member or candidate The panel’s task is to determine whether a violation of the Code and Standards or testing policies occurred and, if so, what sanction should be imposed Sanctions imposed by CFA Institute may have significant consequences; they include public censure, suspension of membership and use of the CFA designation, and revocation of the CFA charter Candidates enrolled in the CFA Program who have violated the Code and Standards or testing policies may be suspended or prohibited from further participation in the CFA Program Adoption of the Code and Standards The Code and Standards apply to individual members of CFA Institute and candidates in the CFA Program CFA Institute does encourage firms to adopt the Code and Standards, however, as part of their code of ethics Those who claim compliance should fully understand the requirements of each of the principles of the Code and Standards Once a party—nonmember or firm—ensures its code of ethics meets the principles of the Code and Standards, that party should make the following statement whenever claiming compliance: “[Insert name of party] claims compliance with the CFA Institute Code of Ethics and Standards of Professional Conduct This claim has not been verified by CFA Institute.” CFA Institute welcomes public acknowledgement, when appropriate, that firms are complying with the CFA Institute Code of Ethics and Standards of Professional Conduct and encourages firms to notify us of the adoption plans For firms that would like to distribute the Code and Standards to clients and potential clients, attractive one-page copies of the Code and Standards, including translations, are available on the CFA Institute website (www.cfainstitute.org) CFA Institute has also published the Asset Manager Code of Professional Conduct, which is designed, in part, to help asset managers comply with the regulations mandating codes of ethics for investment advisers Whereas the Code and Standards are aimed at individual investment professionals who are members of CFA Institute or candidates in the CFA Program, the Asset Manager Code was drafted specifically for firms The Asset Manager Code provides specific, practical guidelines for asset managers in six areas: loyalty to clients, the investment process, trading, compliance, performance evaluation, and disclosure The Asset Manager Code and the appropriate steps to acknowledge adoption or compliance can be found on the CFA Institute website (www.cfainstitute.org) Acknowledgments CFA Institute is a not-for-profit organization that is heavily dependent on the expertise and intellectual contributions of member volunteers Members devote their time because they share a mutual interest in the organization’s mission to promote and achieve ethical practice in the investment profession CFA Institute owes much to the volunteers’ abundant generosity and energy in extending ethical integrity The CFA Institute Standards of Practice Council (SPC), a group consisting of CFA charterholder volunteers from many different countries, is charged with maintaining and interpreting the Code and Standards and ensuring that they are effective The SPC draws its membership from a broad spectrum of organizations in the securities Ethics and the Investment Industry 11 field, including brokers, investment advisers, banks, and insurance companies In most instances, the SPC members have important supervisory responsibilities within their firms The SPC continually evaluates the Code and Standards, as well as the guidance in the Handbook, to ensure that they are ■■ representative of high standards of professional conduct, ■■ relevant to the changing nature of the investment profession, ■■ globally applicable, ■■ sufficiently comprehensive, practical, and specific, ■■ enforceable, and ■■ testable for the CFA Program The SPC has spent countless hours reviewing and discussing revisions to the Code and Standards and updates to the guidance that make up the eleventh edition of the Handbook Following is a list of the current and former members of the SPC who generously donated their time and energy to this effort James E Hollis III, CFA, Chair Christopher C Loop, CFA, Rik Albrecht, CFA James M Meeth, CFA Terence E Burns, CFA Guy G Rutherfurd, Jr., CFA Laura Dagan, CFA Edouard Senechal, CFA Samuel B Jones, Jr., CFA Wenliang (Richard) Wang, CFA Ulrike Kaiser-Boeing, CFA Peng Lian Wee, CFA Jinliang (Jack) Li, CFA ETHICS AND THE INVESTMENT INDUSTRY Society ultimately benefits from efficient markets where capital can freely flow to the most productive or innovative destination Well-functioning capital markets efficiently match those needing capital with those seeking to invest their assets in revenue-generating ventures In order for capital markets to be efficient, investors must be able to trust that the markets are fair and transparent and offer them the opportunity to be rewarded for the risk they choose to take Laws, regulations, and enforcement play a vital role but are insufficient alone to guarantee fair and transparent markets The markets depend on an ethical foundation to guide participants’ judgment and behavior CFA Institute maintains and promotes the Code of Ethics and Standards of Professional Conduct in order to create a culture of ethics for the ultimate benefit of society Why Ethics Matters Ethics can be defined as a set of moral principles or rules of conduct that provide guidance for our behavior when it affects others Widely acknowledged fundamental ethical principles include honesty, fairness, diligence, and care and respect for others Ethical conduct follows those principles and balances self-interest with both the direct and the indirect consequences of that behavior for other people Not only does unethical behavior by individuals have serious personal consequences—ranging from job loss and reputational damage to fines and even jail—but unethical conduct from market participants, investment professionals, and those who service investors can damage investor trust and thereby impair the sustainability of 12 Reading ■ Code of Ethics and Standards of Professional Conduct the global capital markets as a whole Unfortunately, there seems to be an unending parade of stories bringing to light accounting frauds and manipulations, Ponzi schemes, insider-trading scandals, and other misdeeds Not surprisingly, this has led to erosion in public confidence in investment professionals Empirical evidence from numerous surveys documents the low standing in the eyes of the investing public of banks and financial services firms—the very institutions that are entrusted with the economic well-being and retirement security of society Governments and regulators have historically tried to combat misconduct in the industry through regulatory reform, with various levels of success Global capital markets are highly regulated to protect investors and other market participants However, compliance with regulation alone is insufficient to fully earn investor trust Individuals and firms must develop a “culture of integrity” that permeates all levels of operations and promotes the ethical principles of stewardship of investor assets and working in the best interests of clients, above and beyond strict compliance with the law A strong ethical culture that helps honest, ethical people engage in ethical behavior will foster the trust of investors, lead to robust global capital markets, and ultimately benefit society That is why ethics matters Ethics, Society, and the Capital Markets CFA Institute recently added the concept “for the ultimate benefit of society” to its mission The premise is that we want to live in a socially, politically, and financially stable society that fosters individual well-being and welfare of the public A key ingredient for this goal is global capital markets that facilitate the efficient allocation of resources so that the available capital finds its way to places where it most benefits that society These investments are then used to produce goods and services, to fund innovation and jobs, and to promote improvements in standards of living Indeed, such a function serves the interests of the society Efficient capital markets, in turn, provide a host of benefits to those providing the investment capital Investors are provided the opportunity to transfer and transform risk because the capital markets serve as an information exchange, create investment products, provide liquidity, and limit transaction costs However, a well-functioning and efficient capital market system is dependent on trust of the participants If investors believe that capital market participants—investment professionals and firms—cannot be trusted with their financial assets or that the capital markets are unfair such that only insiders can be successful, they will be unlikely to invest or, at the very least, will require a higher risk premium Decreased investment capital can reduce innovation and job creation and hurt the economy and society as a whole Reduced trust in capital markets can also result in a less vibrant, if not smaller, investment industry Ethics for a global investment industry should be universal and ultimately support trust and integrity above acceptable local or regional customs and culture Universal ethics for a global industry strongly supports the efficiency, values, and mission of the industry as a whole Different countries may be at different stages of development in establishing standards of practice, but the end goal must be to achieve rules, regulations, and standards that support and promote fundamental ethical principles on a global basis Capital Market Sustainability and the Actions of One Individuals and firms also have to look at the indirect impacts of their actions on the broader investment community The increasingly interconnected nature of global finance brings to the fore an added consideration of market sustainability that was, perhaps, less appreciated in years past In addition to committing to the highest levels of ethical behavior, today’s investment professionals and their employers should consider the long-term health of the market as a whole Appendix A: Sample Compliant Presentations 257 Cumulative Committed Capital ($ Mil) Paid-In Capital ($ Mil) Cumulative Distributions ($ Mil) DPI RVPI TVPI PIC 2002 20 0.00 1.04 1.04 0.15 2003 20 0.00 0.93 0.93 0.25 2004 20 0.22 0.94 1.16 0.40 2005 20 15 0.23 1.62 1.85 0.75 2006 20 17 12 0.71 1.25 1.96 0.85 2007 20 18 16 0.89 0.82 1.71 0.90 2008 20 19 17 0.89 0.62 1.51 0.95 2009 20 19 19 0.99 0.57 1.56 0.96 2010 20 20 23 1.18 0.47 1.65 0.98 2011 20 20 25 1.25 0.41 1.66 1.00 2012 20 20 29 1.45 0.33 1.78 1.00 Calendar Year Underlying Partnership Investments by Strategy Results Reported as of 31 December 2012 SI-IRR Gross- Benchmark Committed Investment of-Fees Return Capital Strategy (%) ($ Mil) (%) Paid-In Cumulative Capital Distributions Assets ($ Mil) ($ Mil) ($ Mil) DPI RVPI PIC TVPI Multiple Multiple Multiple Multiple Venture Capital 65.3 32.6 8.0 8.0 16.0 2.0 2.0 0.3 2.3 1.0 Buyout 11.3 10.2 12.0 12.0 13.0 4.5 1.1 0.4 1.5 1.0 Disclosures Sample Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards Sample Investments has not been independently verified Sample Investments is an independent private equity manager of fund of funds strategies with offices in Zurich, Menlo Park, New York, and Hong Kong The composite was created in May 2002 and includes one closed-end fund that invests in buyout and venture capital funds The fund of funds has an 8–10 year investment time horizon, but it may be longer based on the life of the underlying funds, which may be extended due to changes in investment and/or exit opportunities As more fully described in the fund’s offering memorandum, primary risks include industry and geographic concentration depending on investment opportunities, and liquidity risks due to the nature of the fund’s investments The composite’s vintage year is 2002, which was determined using the date of the initial capital call of the fund of funds Returns are presented in US dollars The 2002 Fund of Funds Composite complies with PQR’s valuation guidelines, which are consistent with the GIPS Valuation Principles Valuations are normally based on valuations provided by the manager of the underlying investments’ partnerships Because fund investments are not publicly traded, all investments are considered to be valued using subjective unobservable inputs 258 Reading ■ The GIPS Standards All returns for the 2002 Fund of Funds Composite reflect the deduction of administrative expenses (legal, auditing, etc.) of the closed-end fund Gross returns not reflect the deduction of Sample Investments’ management fees Net returns reflect the deduction of actual management fees and accrued carried interest, if any The fund’s SI-IRR calculation incorporates daily cash flows Sample Investments’ annual management fee is 1% on the total committed capital The Vendor ABC Private Equity Fund of Funds Index (vintage year 2002) is used as the benchmark A complete list of the firm’s composite descriptions is available upon request, as are policies for valuing portfolios, calculating performance, and preparing compliant presentations SAMPLE 7 PRIVATE EQUITY: PRIMARY FUND VEHICLE Private Equity Capital Management 2001 Venture Capital Composite Results Reported as of 31 December Year End Paid-In Capital (AUD Mil) 2001* 40.3 Since Inception Distributions (AUD Mil) 0.0 Cumulative Committed Capital (AUD Mil) Composite Assets (AUD Mil) % of Firm Assets 175.0 38.5 64.2 2002 82.3 1.0 175.0 78.8 52.5 2003 129.5 29.9 175.0 105.0 58.3 2004 143.5 42.3 175.0 120.8 41.6 2005 157.5 97.0 175.0 119.0 37.8 2006 166.2 129.3 175.0 112.0 31.1 2007 171.5 184.7 175.0 98.0 28.0 2008 182.5 184.7 175.0 78.8 21.0 2009 182.5 184.7 175.0 49.0 11.9 2010 182.5 184.7 175.0 31.5 7.5 2011 182.5 205.8 175.0 5.2 1.1 *Returns are for the period from February 2001 (inception date) through 31 December 2001 PIC Composite Gross-of-Fees SI-IRR (%) Composite Net-of-Fees SI-IRR (%) Benchmark SI-IRR (%) 0.96 0.23 –7.5 –9.5 –12.5 0.01 0.96 0.47 0.3 –1.6 –3.5 0.23 0.81 0.74 4.1 2.3 1.2 1.14 0.29 0.84 0.82 8.2 6.4 7.4 2005 1.37 0.62 0.76 0.90 11.0 9.3 8.2 2006 1.45 0.78 0.67 0.95 13.0 10.1 9.7 2007 1.65 1.08 0.57 0.98 18.1 12.3 11.4 2008 1.44 1.01 0.43 1.04 16.9 10.4 10.1 Year End TVPI DPI RVPI 2001 0.96 0.00 2002 0.97 2003 1.04 2004 Appendix A: Sample Compliant Presentations 259 Year End TVPI DPI RVPI PIC Composite Gross-of-Fees SI-IRR (%) 2009 1.28 1.01 0.27 1.04 14.9 8.7 7.2 2010 1.18 1.01 0.17 1.04 14.0 7.7 6.8 2011 1.16 1.13 0.03 1.04 11.2 6.2 5.5 Composite Net-of-Fees SI-IRR (%) TVPI = Total Value to Since Inception Paid-In Capital DPI = Since Inception Distributions to Since Inception Paid-In Capital PIC = Since Inception Paid-In Capital to Cumulative Committed Capital RVPI = Residual Value to Since Inception Paid-In Capital Disclosures Compliance Statement Private Equity Capital Management claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards Private Equity Capital Management has been independently verified for the periods February 2001 through 31 December 2010 Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards The 2001 Venture Capital Composite has been examined for the periods January 2005 through 31 December 2010 The verification and performance examination reports are available upon request Firm & Composite Private Equity Capital Management (“PECM”) is an independent private equity investment firm with offices in New York, London, and Sydney The 2001 Venture Capital Composite includes one fund, whose objective is to seek long-term capital appreciation by acquiring minority interests in early-stage technology companies The fund invests in technology companies in Europe, Asia Pacific, and emerging markets European venture investments are more concentrated than in the other regions and are focused in a few high-quality companies Exit opportunities include IPOs, trade sales, and secondary sales Opportunities in China and India will be targeted for investment, and an allocation to Chinese high-tech will be at least 10% of the invested capital over the life of the fund International venture capital investments are generally illiquid and are subject to currency risk If investment opportunities and/or exit strategies become limited, the life of the fund may be extended and capital calls and distributions may be delayed The 2001 Venture Capital Composite was created in 2001 The vintage year of the composite is 2001 and was determined by the year of the first drawdown The firm’s list of composite descriptions and the firm’s policies for calculating performance and preparing compliant presentation are available upon request Input Data & Calculation The 2001 Venture Capital Composite complies with the LMN Venture Capital Association’s valuation guidelines as well as the GIPS Valuation Principles Valuations are prepared by PECM’s valuation committee and reviewed by an independent advisory board All investments within the composite are valued Benchmark SI-IRR (%) 260 Reading ■ The GIPS Standards using either a most recent transaction or an earnings multiple Policies for valuing investments are available upon request Due to the nature of private equity investments, all investments are valued using subjective unobservable inputs The SI-IRR calculation incorporates monthly cash flows for periods prior to 31 December 2009 and daily cash flows thereafter Performance is expressed in Australian dollars (AUD) Gross returns are net of transaction expenses and all administrative expenses Net returns are net of transaction expenses, administrative expenses, management fees, and carried interest The standard fee schedule currently in effect is as follows: The manager will receive an annual management fee equal to 2% of capital commitments The manager’s participation in profits (carried interest) begins after the limited partners have been provided an 8% preferred return The manager collects 20% of the distributed profits from that point forward Subsequently, if the amount of cumulative carried interest exceeds 20% of the net cumulative gains, the manager will repay the excess amount to the fund for distribution to the limited partners There is only one fund in the composite for all periods; therefore, the internal dispersion of portfolio returns is not applicable Benchmark The benchmark return is derived from private equity dollar-weighted IRRs, and the calculation is based on the overall market return for international venture capital funds as published by Benchmark Provider GHI Vintage year benchmarks are median returns for the applicable vintage year, as of each year end SAMPLE 8 INVESTMENTS LARGE-C AP SMA COMPOSITE 1 January 2001 through 31 December 2010 As of 31 December Year Net Return (%) XYZ Index Return (%) Internal Dispersion (%) Number of Portfolios Composite Assets ($ Millions) Firm Assets ($ Millions) % of SMA Portfolios 2010 8.4 10.2 0.7 1,834 2,125 18,222 100 2009 21.1 21.1 1.1 1,730 2,130 17,635 100 2008 –39.7 –39.8 1.0 1,631 2,141 19,246 100 2007 1.4 6.2 1.2 1,532 2,127 14,819 100 2006 11.4 10.5 0.9 1,428 2,116 12,362 100 2005 1.0 4.3 0.8 68 1,115 12,051 2004 6.8 4.9 1.0 52 1,110 13,419 2003 23.9 27.0 1.1 46 990 10,612 2002 –24.4 –19.1 0.9 38 975 9,422 2001 –17.7 –12.8 0.8 41 870 8,632 Appendix A: Sample Compliant Presentations Notes: Sample Investments claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards Sample Investments has been independently verified for the period from April 1996 through 31 December 2009 Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards The Large Cap SMA Composite has been examined for the period from January 2006 through 31 December 2009 The verification and performance examination reports are available upon request Sample Investments is an independent investment adviser registered under the Investment Advisers Act of 1940, was founded in March 1996, and manages global large-cap equity, fixed-income, and balanced strategies Beginning January 2006, the composite includes only wrap fee (SMA) portfolios benchmarked to the XYZ Index Performance results prior to 2006 are based on the Large-Cap Institutional Composite returns The Large-Cap SMA Composite is composed of portfolios invested in US equities which have a market capitalization greater than $5 billion The composite was created in February 2006 A list of composite descriptions is available upon request All returns are expressed in US dollars Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request The XYZ Index returns are provided to represent the investment environment existing during the time periods shown For comparison purposes, the index is fully invested and includes the reinvestment of income The returns for the index not include any trading costs, management fees, or other costs Index returns have been taken from published sources “Pure” gross returns, presented below as supplemental information, from 2006 through 2010 not reflect the deduction of any trading costs, fees, or expenses and are presented for comparison purposes only “Pure” gross returns prior to 2006 reflect the deduction of trading costs The SMA fee includes all charges for trading costs, portfolio management, custody, and other administrative fees Net returns are calculated by subtracting the highest applicable SMA fee (2.50% on an annual basis, or 0.21% monthly) on a monthly basis from the “pure” gross composite monthly return The standard fee schedule in effect is as follows: 2.50% on total assets The dispersion is measured by the equal-weighted standard deviation of annual returns of those portfolios that are included in the composite for the full year 10 At 31 December 2010, the three-year annualized ex-post standard deviation of the composite and the benchmark are 12.3% and 13.2%, respectively 11 Past performance is not an indicator of future results 261 262 Reading ■ The GIPS Standards Supplemental Information Year “Pure” Gross Return* (%) Net Return (%) Assuming 3% SMA Fees Net Return (%) Assuming 2% SMA Fees 2010 11.1 7.9 9.0 2009 24.0 20.5 21.7 2008 –38.0 –40.1 –39.4 2007 4.0 0.9 2.0 2006 14.1 10.8 11.9 2005 3.5 0.5 1.5 2004 9.5 6.3 7.4 2003 26.9 23.3 24.5 2002 –22.3 –24.8 –23.9 2001 –15.5 –18.1 –17.2 * “Pure” gross-of-fees returns not reflect the deduction of any expenses, including trading costs “Pure” gross-of-fees returns are supplemental to net returns Appendix B: Sample Advertisements 263 OPTIONAL SEGMENT APPENDIX B: SAMPLE ADVERTISEMENTS SAMPLE ADVERTISEMENT WITHOUT PERFORMANCE Generic Asset Management Generic Asset Management is the institutional asset management division of Generic Inc and is a registered investment advisory firm specializing in qualitative growth-oriented investment management Generic Asset Management claims compliance with the Global Investment Performance Standards (GIPS®) To receive a list of composite descriptions of Generic Asset Management and/or a presentation that complies with the GIPS standards, contact Jean Paul at (123) 456-7890, or write to Generic Asset Management, 123 Main Street, Returnsville 12345, or jpaul@genericassetmanagment.com SAMPLE ADVERTISEMENT INCLUDING ONE-, THREE-, AND FIVE-YEAR ANNUALIZED RETURNS Generic Asset Management: Global Equity Growth Composite Ending 31 Mar 2012 Global Equity Growth Composite XYZ World Index 1-Year 3-Year Annualized 5-Year Annualized –0.3% 13.7% 0.1% –0.5% 13.8% –0.6% Note: Returns are shown in US dollars net of fees Generic Asset Management is the institutional asset management subsidiary of Generic Inc and is a registered investment adviser specializing in qualitative growth-oriented investment management The Global Equity Growth strategy focuses on earnings, growth of earnings, and key valuation metrics The benchmark is the XYZ World Index, which is designed to measure the equity market performance of developed market countries The benchmark is market-cap weighted and is composed of all XYZ developed market indices Generic Asset Management claims compliance with the Global Investment Performance Standards (GIPS®) To receive a list of composite descriptions of Generic Asset Management and/or a presentation that complies with the GIPS standards, contact Jean Paul at (123) 456-7890, or write Generic Asset Management, One Plain Street, Returnsville 12345, or jpaul@genericassetmanagement.com 264 Reading ■ The GIPS Standards SAMPLE ADVERTISEMENT INCLUDING PERIOD-TO-DATE AND ONE-, THREE-, AND FIVE-YEAR ANNUALIZED RETURNS Generic Asset Management: Global Equity Growth Composite Ending 31 Mar 2012 Global Equity Growth Composite XYZ World Index Ending 31 Dec 2011 Period to Date (3 months) 1-Year 3-Year Annualized 5-Year Annualized –3.84% 1.3% 15.0% –1.2% –4.94% 1.5% 14.1% –0.7% Note: Returns are shown in US dollars net of fees Generic Asset Management is the institutional asset management subsidiary of Generic Inc and is a registered investment adviser specializing in qualitative growth-oriented investment management The Global Equity Growth strategy focuses on earnings, growth of earnings, and key valuation metrics The benchmark is the XYZ World Index, which is designed to measure the equity market performance of developed market countries The benchmark is market-cap weighted and is composed of all XYZ developed market indices Generic Asset Management claims compliance with the Global Investment Performance Standards (GIPS®) To receive a list of composite descriptions of Generic Asset Management and/or a presentation that complies with the GIPS standards, contact Jean Paul at (123) 456-7890, or write Generic Asset Management, One Plain Street, Returnsville 12345, or jpaul@genericassetmanagement.com SAMPLE ADVERTISEMENT INCLUDING FIVE YEARS OF ANNUAL RETURNS Generic Asset Management: Global Equity Growth Composite Global Equity Growth Composite XYZ World Index Period to Date (3 months to 31 Mar 2012) 2011 2010 2009 2008 2007 –3.84% 1.3% 13.0% 33.0% –40.6% 9.6% –4.94% 1.5% 11.8% 30.8% –40.3% 9.6% Annual Returns Periods Ended 31 December Note: Returns are shown in US dollars net of fees Generic Asset Management is the institutional asset management subsidiary of Generic Inc and is a registered investment adviser specializing in qualitative, growth-oriented investment management The Global Equity Growth strategy focuses on earnings, growth of earnings, and key valuation metrics The Appendix B: Sample Advertisements benchmark is the XYZ World Index, which is designed to measure the equity market performance of developed market countries The benchmark is market- cap weighted and is composed of all XYZ developed market indices Generic Asset Management claims compliance with the Global Investment Performance Standards (GIPS®) To receive a list of composite descriptions of Generic Asset Management and/or a presentation that complies with the GIPS standards, contact Jean Paul at (123) 456-7890, or write to Generic Asset Management, 123 Main Street, Returnsville 12345, or jpaul@genericassetmanagment.com 265 266 Reading ■ The GIPS Standards APPENDIX C: SAMPLE LIST OF COMPOSITE DESCRIPTIONS Unconstrained Activist UK Equity Composite The Unconstrained Activist UK Equity Composite includes all institutional portfolios invested in both listed and unlisted UK equities that pursue an activist investment policy; there is no restriction on the market capitalization of companies held Portfolios within this composite are highly concentrated, holding approximately 15 securities, so returns may have lower correlation with the benchmark than a fully diversified strategy In times of increased market volatility, the composite characteristics may change significantly and stock liquidity could be reduced Due to their more concentrated nature, portfolios will tend to have more stock-specific risk than a more diversified strategy Portfolios can use both exchange-traded and OTC derivative contracts for efficient portfolio management, which may expose the strategy to counterparty risk The benchmark is the FTSE All Share® Index Emerging Market High Yield Fixed Income Composite The Emerging Market High Yield Fixed Income Composite includes all institutional and retail portfolios invested in high yield debt securities issued by countries outside the OECD The strategy allows for investment in foreign currency denominated assets over which the manager has full discretion on hedging The strategy aims to deliver a total return primarily through income but with some capital growth High yield bonds carry increased levels of credit and default risk and are less liquid than government and investment grade bonds Investment in less regulated markets carries increased political, economic, and issuer risk The benchmark is the J.P Morgan Emerging Market Bond Index (EMBI+) UK Liquidity Plus Composite The UK Liquidity Plus Composite includes all institutional portfolios invested in a broad range of short-dated interest-bearing deposits, cash equivalents, short-term commercial paper, and other money market investments issued by major UK clearing banks and lending institutions The strategy has a targeted modified duration of less than one year The principal investment objectives are preservation of capital, maintenance of liquidity, and provision of yield greater than that available for the benchmark, the three-month Libor rate The UK Liquidity Plus strategy differs from more conventional cash strategies in that it additionally holds short-term commercial paper, which has a greater exposure to credit risk Socially Responsible Investment (SRI) Composite The Socially Responsible Investment Composite includes all segregated institutional and pooled portfolios that invest in global equity securities issued by companies that make a positive contribution to society and the environment through sustainable and socially responsible practices The strategy aims to provide long-term capital appreciation together with a growing income stream through investment in a portfolio of core equity holdings diversified by economic sector, industry group, and geographic business concentration All foreign currency exposures are fully hedged back to US dollars The SRI process tends to screen out certain companies and sectors, which may result in a more concentrated strategy than a fully diversified strategy Changes in legislation, scientific thinking, national and supra-national policies, and Appendix C: Sample List of Composite Descriptions behaviors could significantly affect the stocks of companies held within the strategy The benchmark is the Morningstar Ethical/SRI Global GIF Sector peer group Leveraged Bond Composite The Leveraged Bond Composite includes all institutional segregated portfolios invested in a diversified range of high yield corporate and government bonds with the aim of providing investors with a high level of income while seeking to maximize the total return The portfolios are invested in domestic and international fixed income securities of varying maturities The strategy allows investment in exchange-traded and OTC derivative contracts (including, but not limited to, options, futures, swaps, and forward currency contracts) for the purposes of risk, volatility, and currency exposure management The strategy allows leverage up to but not exceeding twice the value of a portfolio’s investments through the use of repurchase financing arrangements with counterparties Inherent in derivative instrument investments is the risk of counterparty default Leverage may also magnify losses as well as gains to the extent that leverage is employed The benchmark is the Barclays Capital Global Aggregate Bond Index Global Commodity Composite The Global Commodity Composite includes institutional portfolios that globally invest in a diversified range of companies that provide exposure to commodities, energy, and materials Investment is primarily through the common or ordinary stock of these companies Investment directly in raw materials is allowable to a maximum exposure of 10% Exchange-traded funds and exchange-traded commodity securities up to a maximum 20% exposure are also allowed The base currency is US dollars, and any or all of the currency risk associated with investments in currencies other than dollars may be hedged between 0% and 100% at the manager’s discretion The strategy cannot gear or otherwise deploy leverage but may use exchange-traded derivative instruments for efficient portfolio management Investments directly or indirectly in commodities may add to portfolio volatility Global commodity prices can be affected by changes in legislation, national and supra-national policies, and behaviors In times of commodity price volatility, the liquidity of directly held commodities and the correlation with the broad market can change quickly The benchmark is the Dow Jones–UBS Commodity Index Total ReturnSM Large Cap Equity Growth Composite The Large Cap Equity Growth Composite includes all institutional portfolios that invest in large capitalization US stocks that are considered to have growth in earnings prospects that is superior to that of the average company within the benchmark, the Russell 3000® Growth Index The targeted tracking error between the composite and the benchmark is less than 3% Balanced Growth Composite The Balanced Growth Composite includes all institutional balanced portfolios that invest in large-cap US equities and investment-grade bonds with the goal of providing long-term capital growth and steady income from a well-diversified strategy Although the strategy allows for equity exposure ranging between 50% and 70%, the typical allocation is between 55% and 65% Currency Overlay Composite 267 268 Reading ■ The GIPS Standards The Currency Overlay Composite includes all institutional and retail portfolios invested in a broad range of foreign-currency-denominated deposits or instruments, such as forward contracts, futures, or foreign exchange derivatives The principal investment objective is alpha generation through currency appreciation and/or risk mitigation from adverse movements in exchange rates where the original currency exposure stems from a global or international portfolio Hedging strategies may range from passive to fully active Currency-related investing carries inherent risks due to changes in macroeconomic policy, which can be amplified in the case of emerging markets, where political regime shifts and changes in the control of capital may be more prevalent In volatile periods, liquidity and correlations between currencies may change expected returns drastically Foreign exchange forwards and derivatives traded over the counter have counterparty default risk 10 Asian Market Neutral Composite The Asian Market Neutral Composite includes a single hedge fund with a market neutral strategy that invests in publically traded Asian equities with a market capitalization greater than $500 million The strategy uses a risk controlled quantitative screening and optimization process that invests at least 85% of the net asset value in long equity positions and at least 85% of the net asset value in short equity positions The long portion of the strategy will overweight those securities that have been quantitatively identified as potentially exhibiting superior and sustainable earnings growth compared with the market; conversely, the short portion of the strategy will consist of securities that have been identified as having inferior growth prospects or that may also be adversely affected by either specific events or by momentum considerations The principal objective of the strategy is to outperform the return on three-month US Treasury Bills through active trading of long and short equity positions The Asian Market Neutral strategy seeks to dollar balance exposures between long and short positions so that broad market movements are neutralized In certain market conditions, the investment process behind the strategy can give rise to unmatched country, sector, industry, market capitalization, and/or style bias exposures in the portfolio The active trading strategy will involve significantly greater stock turnover when compared with passive strategies 11 2001 Venture Capital Composite The 2001 Venture Capital Composite includes one fund, whose objective is to seek long-term capital appreciation by acquiring minority interests in early- stage technology companies The fund invests in technology companies in Europe, Asia Pacific, and emerging markets European venture investments are more concentrated than in the other regions and are focused in a few high- quality companies Exit opportunities include IPOs, trade sales, and secondary sales Opportunities in China and India will be targeted for investment, and an allocation to Chinese high-tech will be at least 10% of the invested capital over the life of the fund International venture capital investments are generally illiquid and are subject to currency risk If investment opportunities and/or exit strategies become limited, the life of the fund may be extended and capital calls and distributions may be delayed 12 2006 Buyout Strategy Fund of Funds Composite The 2006 Buyout Strategy Fund of Funds Composite includes primary and secondary partnership investments with strategies focused on leveraged and growth-oriented buyouts primarily in the United States Managers of partnerships are expected to focus on reducing costs, preparing companies for downturn, and providing operational improvement rather than financial engineering Appendix C: Sample List of Composite Descriptions 269 Investments may be in small, medium, and large buyout partnerships, aiming to make selective commitments diversifying across stages, industries, and vintage years Secondary deals take advantage of distressed primary partnership sales providing access to an increased mix of assets The underlying funds are leveraged 100–300% Private equity investments are illiquid and, therefore, if investment opportunities and/or exit strategies become limited, the life of the fund may be extended and capital calls and distributions may be delayed 13 Value-Added Strategy Non-Closed-End Real Estate Composite The Value-Added Strategy Composite consists of all discretionary open- end funds and separate accounts managed by the Firm using a value-added investment strategy with an equal income and appreciation focus and having a minimum portfolio size of $10 million Portfolio management will invest in multi-family, office, industrial, and retail property types only within Asia that require correction or mitigation of the investments’ operating, financial, redevelopment, and/or management risk(s) A moderate level of leverage ranging between 30% and 40% is used Real estate investments are generally illiquid, and the investment outlook may change given the availability of credit or other financing sources 14 Value-Added Strategy Closed-End Real Estate Composite The Value-Added Strategy Composite includes a single closed-end commingled fund managed by the Firm using a value-added investment strategy with a focus on both income and appreciation Portfolio management intends to invest in properties located in major markets within the United States with higher operational risk than traditional property types The target level of leverage is 50% with a maximum allowable level of 60% Real estate investments are generally illiquid, and the investment outlook may change given the availability of credit or other financing sources If investment opportunities and/or exit strategies become limited, the life of the fund may be extended and capital calls and distributions may be delayed 15 US Core Equity Composite (Terminated Composites) The US Core Equity Composite includes all institutional portfolios and pooled funds managed to a GARP (growth at a reasonable price) strategy through investment in a high-quality, focused portfolio of domestic, large-capitalization stocks that are expected to generate returns above the S&P 500® Index over a market cycle Sample Asset Management Firm uses a quantitative screening process together with fundamental research and then overlays macroeconomic factors and economic sector exposures to construct portfolios The benchmark is the S&P 500 Index Quantitative-driven investment screening relies on historical stock correlations, which can be adversely affected during periods of severe market volatility The composite terminated in March 2009 Detailed composite definitions are available upon request END OPTIONAL SEGMENT 270 Reading ■ The GIPS Standards PRACTICE PROBLEMS With respect to the Global Investment Performance Standards, which of the following is one of the nine sections containing investment performance provisions? A Real Estate B Derivatives C Legal and Ethical Considerations According to the Fundamentals of Compliance section of the Global Investment Performance Standards, issues that a firm must consider when claiming compliance include all of the following except: A replicating performance B properly defining the firm C documenting firm policies and procedures used in establishing and maintaining compliance with the Standards G&F Advisors claims compliance with the Global Investment Performance Standards (GIPS) in its marketing materials The compliant presentation includes a footnote which indicates that the firm has been verified by an independent third party An additional note states that G&F is in compliance with the GIPS standards except for its private equity investments It is likely that G&F violated the GIPS standards? A No, because the footnotes meet the requirements of the Standards B No, because the provisions not apply to the private equity investments C Yes, because they cannot claim compliance unless all requirements of the Standard are met Copyright © 2012 CFA Institute Solutions SOLUTIONS A is correct Real Estate is one of the nine sections in the 2010 edition of the GIPS standards Derivatives and Legal and Ethical Considerations are not sections of the Standards A is correct Replication of performance is not included in the Fundaments of Compliance section within the GIPS standards C is correct Firms must meet all the requirements set forth in the GIPS standards and cannot claim partial compliance 271 [...]... A CFA INSTITUTE MEMBER OR CFA CANDIDATE A Conduct as Participants in CFA Institute Programs Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of CFA Institute programs B Reference to CFA Institute, the CFA Designation, and the CFA Program When referring to CFA Institute, CFA. .. result in disciplinary sanctions by CFA Institute Sanctions can include revocation of membership, revocation of candidacy in the CFA Program, and revocation of the right to use the CFA designation 15 16 Reading 1 ■ Code of Ethics and Standards of Professional Conduct The Code of Ethics Members of CFA Institute (including CFA charterholders) and candidates for the CFA designation (“Members and Candidates”)... advisers for guidance Additionally, CFA Institute encourages members, nonmembers, clients, and the investing public to report violations of the Code and Standards by CFA Institute members or CFA candidates by submitting a complaint in writing to the CFA Institute Professional Conduct Program via e-mail (pcprogram@cfainstitute.org) or the CFA Institute website (www.cfainstitute.org) Investment Products... Designation, and the CFA Program When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program 19 R E A DIN G 2 Guidance for Standards I–VII LEARNING OUTCOMES Mastery The candidate... 19 60s, the Code and Standards have promoted the integrity of CFA Institute members and served as a model for measuring the ethics of investment professionals globally, regardless of job function, cultural differences, or local laws and regulations All CFA Institute members (including holders of the Chartered Financial Analyst [CFA] designation) and CFA candidates have the personal responsibility to embrace... define the overarching conduct CFA Institute expects from its members and CFA Program candidates The Code works in tandem with the Standards, which outline professional conduct that constitutes fair and ethical business practices For more than 50 years, CFA Institute members and candidates have been required to abide by the organization’s Code and Standards Periodically, CFA Institute has revised and... information about current, former, and prospective clients confidential unless: 1 The information concerns illegal activities on the part of the client or prospective client, 2 Disclosure is required by law, or 3 The client or prospective client permits disclosure of the information IV DUTIES TO EMPLOYERS A Loyalty 17 18 Reading 1 ■ Code of Ethics and Standards of Professional Conduct In matters related... to engage in the investment management profession in a highly ethical manner Ethical Commitment of CFA Institute An important goal of CFA Institute is to ensure that the organization and its members and candidates develop, promote, and follow the highest ethical standards in the investment industry The CFA Institute Code of Ethics (Code) and Standards of Professional Conduct (Standards) are the foundation... ethical decision making will help investment professionals effectively examine their conduct in the context of conflicting interests common to their professional obligations (e.g., researching 13 14 Reading 1 ■ Code of Ethics and Standards of Professional Conduct and gathering information, developing investment recommendations, and managing money for others) Such a framework will allow investment professionals... outlined in Exhibit 1 The applicable laws governing the responsibilities of a member or candidate should be viewed as the minimal threshold of acceptable actions When members and candidates take actions that exceed the minimal requirements, they further support the conduct required of Standard I(A) Standard I: Professionalism CFA Institute members are obligated to abide by the CFA Institute Articles