Minimum Duration of Composites in Compliance with Performance Presentation Standards | CFA Level 1 Exam

A

A 10 year performance record (or a record for the period since firm inception if inception is less than 10 years) must be presented.

The Performance Presentation Standards, as defined by the CFA Institute, provide guidelines for presenting investment performance to ensure transparency and comparability. According to these standards, composites are portfolios or groups of portfolios with similar investment objectives, strategies, or mandates.

Regarding the minimum time period that composites should cover, the correct answer is A. ten years. This means that composites should ideally include performance data for at least ten years. However, if the firm has a shorter track record, they should present the entire available record.

The reason behind this requirement is to provide a meaningful and comprehensive view of the composite's performance over an extended period. By covering at least ten years, investors and other stakeholders can evaluate the composite's performance across different market cycles and economic conditions, which helps in assessing its long-term consistency and risk-adjusted returns.

It's worth noting that the minimum coverage period of ten years is not always feasible for firms with a shorter operating history. In such cases, the entire available record should be presented instead. This ensures that investors have access to the complete performance information, even if it doesn't meet the ten-year requirement.

By adhering to these standards, investment firms aim to maintain consistency and transparency in presenting performance data, allowing investors to make informed decisions based on reliable and comparable information.