“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 Boatman’s two comments on the GIPS standards are correct or incorrect.
A . Only comment 1 is correct.
B . Only comment 2 is correct.
C . Both are correct.

View Answer

Answer: A

Explanation:

Comment 1 is incorrect. It is true that the general provisions for GIPS make the verification of GIPS compliance by an outside third party voluntary and that real estate must be valued by an outside trained professional at least every three years.

However, there is no requirement that the valuation of private equity be performed by an outside third party. It is the case that the valuation must be performed in a professional manner by experienced individuals under the supervision of senior management.

Comment 2 is incorrect. Although both income and capital gains are required in the calculation of returns under al! GIPS provisions, presentation of both is not required under the general provisions. For real estate, it is required that both the capital return and income return be disclosed. Note that they must sum to the total return.

In the case of private equity, the income return per se is not required to be disclosed, but the firm must present the values for the following: paid-in-capital; total invested capital; and cumulative distributions to date. The following multiples must also be presented: total value to paid-in-capital; cumulative distributions to date to paid-in-capital; and residual value to paid-in-capital. (Study Session 18, LOS 49.q)