Author Archives: Molly Klein

2021 Virtual Annual Investment Industry Update

Wednesday, November 17, 2021
9:00 AM – 11:30 AM

Agenda items included:

  • GIPS update – what’s new since the implementation of GIPS 2020?
  • SEC marketing vs. GIPS
  • SEC and regulatory update
  • Tax update, including the latest on the Biden tax proposals
  • Trends in operational due diligence

Click here to download the slides from the presentation.

Watch the videos from the webinar:

2020 Virtual Annual Investment Industry Seminar

Tuesday, November 17, 2020
9:30 AM – 12:00 PM

This seminar covered:

  • GIPS practical highlights
  • SEC and regulatory update
  • Tax update
  • Fair value vs. cost accounting
  • Custody rule triggers: pitfalls and considerations


  • Thomas Peters, Director, Audit & Accounting and Investment Industry Group Leader, Kreischer Miller
  • Josh Kramer, Manager, Audit & Accounting, Kreischer Miller
  • Todd Crouthamel, Director, Audit & Accounting, Kreischer Miller
  • Craig Evans, Director, Audit & Accounting, Kreischer Miller
  • Todd Cipperman, Principal, Cipperman Compliance Services
  • Rich Nelson, Director, Tax Strategies, Kreischer Miller

Click here to download the slides from the presentation. 

Watch the videos from the seminar:

Hedge Funds and Private Equity Firms Unable to Participate in PPP Loan Program

Craig B. Evans, Director, Audit & Accounting


Earlier today, President Trump signed the $484 billion bill passed by the House Thursday afternoon and intended to provide additional relief to businesses impacted by the COVID-19 pandemic. The bill includes approximately $310 billion in additional funding for the Paycheck Protection Program (PPP). Of the $310 billion, $60 billion is reserved for smaller lenders, including community financial institutions, small insured depository institutions, and credit unions with assets less than $10 billion.

Unfortunately, hedge funds and private equity firms will be unable to take advantage of PPP loans. In its interim final rule, the Treasury Department clarified that hedge funds and private equity firms are primarily engaged in investment or speculation, and that Congress did not intend for these types of business to obtain PPP financing.

As more details of business relief efforts are made available, specifically those related to the investment industry, Kreischer Miller’s Investment Industry Group will provide additional updates. We also regularly update our COVID-19 Resource Center, which you can access here. If you have any questions about these or any other matters, please contact your Kreischer Miller relationship professional or any member of our team.

Craig B. Evans can be reached at or 215.441.4600.



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Kreischer Miller Annual Investment Industry Update

Thursday, December 6, 2018
11:30 AM – 3:30 PM
Crowne Plaza in King of Prussia, PA


On December 6th we discussed current topics and key changes impacting GIPS, performance reporting, SEC compliance, and accounting and tax issues.

Watch the videos from the seminar:

Why Should You Perform Operational Due Diligence When Evaluating an Investment Manager?

In order to address the question of whether or not you should perform operational due diligence as part of your process to evaluate an investment manager, a broad analysis of the primary Working With Usunderlying risks is helpful. There are two main types of risk that investors need to assess: investment risk and operational risk.

Investment Risk

Investment risk is the risk that the actual return on an investment will be lower than the investor’s expectations. The risk is inherent to a manager’s strategy. Investment plans often manage investment risk by focusing on several key factors, including:

  • Tactical allocation
  • Balancing risk between various asset classes
  • Choice of investment structures

Additional investment risk is often taken with the expectation of receiving additional investment returns.

Operational Risk

Operational risk is the risk that the way the investment manager conducts its operations and business could lead to lower investment returns. It includes many qualitative elements such as an investment manager’s internal controls, design and implementation of systems, and oversight of employees. Taking on additional operational risk is never expected to improve returns. For this reason, operational risk is an uncompensated business risk.

The following operational items are things to watch out for:

  • Investment managers operating outside of their mandates
  • Ineffective transaction controls
  • Weak reconciliation procedures
  • Concentration of authority in one or a few individuals
  • Inappropriate attitudes toward risk management
  • Lack of checks and balances

It is difficult to anticipate operational risk. Because human error is unpredictable, weak controls or sloppy systems are difficult to price into the risk calculation. Investors, therefore, must assume that human error will be prevented by tight controls in the manager’s systems, in order to rationalize using a manager.

How do Investors Assess and Manage Risk?

Investors assess risk by understanding the investment strategy and determining how it fits into the overall asset allocation model, and by using consultants and other professionals to help provide additional guidance. Sometimes this includes a detailed analysis of returns in different environments and other statistical measures.

Operational risk is impossible to assess from investment returns alone or other purely quantitative measures. This risk is best assessed by performing operational due diligence, which typically addresses the following:

  • Trading processes
  • Valuation
  • Investment portfolio accounting
  • Compliance (internal and external via regulators)
  • Cash management
  • Reconciliation procedures
  • Performance measurement
  • Service providers used
  • Financial strength of the investment manager
  • Business continuity planning
  • Counterparty risk management

Operational due diligence allows for a deeper understanding of an investment manager’s policies and procedures and whether they are designed to minimize these types of uncompensated risks.

Objectives of Operational Due Diligence

Although the core objective of operational due diligence is to provide investors with information that helps them make investment decisions, the process impacts managers as well. The objectives of operational due diligence can generally be summarized as follows:

  1. For all – Reaffirms the details of the investment mandates to the investment manager’s teams, the necessity for adhering to them, and the investor’s desire to minimize operational risks.
  2. For managers with less sophisticated internal support – Creates an opportunity for strengthening internal systems, procedures, and safeguards that preserve the investment mandate and minimize operational risks.
  3. For managers who operate outside of their investment mandates in a transparent manner or have systems and processes that expose the investor to unnecessary risks – Creates an opportunity for constructive redirection of any internal systems, procedures, and personnel.
  4. For those who are covering up an overt disregard of their investment mandate or an overt disregard for systems and process to reduce risk – Creates a potential deterrent, as the process increases their risk of being discovered.
  5. For investors – Provides feedback that strengthens the understanding of operational risks associated with individual investment managers, and provides assurance of increased manager accountability for maintaining the investment mandate and reducing operational risks.

While it is impossible to eliminate all risks involved with any investment, a strong operational due diligence program can help mitigate such risks and provide investors with valuable insight to help them make investment decisions.

We would be pleased to provide further information related to this subject. For more information, contact Thomas A. Peters, Director, Audit & Accounting at


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Newly-Proposed Guidance Statement on Verifier Independence

Verifier independence is not a new topic within the GIPS Standards. In 2005, the GIPS Executive Committee released the Guidance Statement on Verifier Independence, which laid the foundation for verifier independence as well as outlined the minimum guidelines for verification firms and clients. The newly-proposed Guidance Statement on Verifier Independence is being issued with the purpose of clarifying and strengthening the existing guidance surrounding verifier independence.

Verifier Independence Clarified

The proposed Guidance Statement stresses that independence is the responsibility of the verification firm as well as the verification client. The assessment of independence is initially performed at the commencement of an engagement acknowledged by both parties through an engagement letter. However, it should be an ongoing process throughout the engagement, affirmed by both the verification firm and verification client upon completion of the engagement via the verification report and representation letter, respectively. Any new information potentially impacting the initial assessment of independence should be reviewed and documented by both the verification firm and verification client, along with the conclusions reached.

With respect to the guiding principal that verification firms should not step into a management role on behalf of a verification client or assume any responsibility in any management function, the proposed Guidance Statement defines “management functions” as tasks and responsibilities that are relate to the GIPS-compliance process. Some examples given within the proposed Guidance Statement include:

  • Assigning portfolios to composites;
  • Determining firm definition;
  • Determining discretion definition and/or status;
  • Creating composite criteria;
  • Establishing or modifying policies and procedures;
  • Calculating portfolio- and composite-level returns; and
  • Preparing compliant presentations

What the Proposed Guidance Requires

In an attempt to strengthen the independence assessment made by the verification firm, the proposed Guidance Statement will require verifiers to create and document policies and procedures surrounding the independence assessment at both the firm and the employee level. This is a change from prior guidance. Although verifiers were always responsible to assess independence, this proposed Guidance Statement now requires all verifiers to formally document their policies and procedures for addressing independence. The proposed Guidance Statement also encourages verification clients to follow suit and document policies and procedures that address verifier independence.

Your Opinion Matters

The proposed Guidance Statement on Verifier Independence will be open for public comment until October 26, 2017. We encourage all firms, including both verification firms and verification clients, to weigh in on the guidance statement as all will be subject to the provisions on verifier independence. The draft of the guidance statement can be found at:

We would be pleased to provide further information related to this subject. For more information, contact Thomas A. Peters, Director, Audit & Accounting at or Joshua E. Kramer, Senior Accountant, Audit & Accounting at

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Newly-Proposed Guidance Statement on Risk

The GIPS Technical Committee is seeking comments on a newly-proposed Guidance Statement on Risk and how it relates to the presentation of risk, both quantitatively and qualitatively within the compliant presentation. The Guidance Statement will address when and where risk-related information is appropriate, recommended, and required to be included in compliant presentations.

Presentation of the Three-Year Annualized Ex-Post Standard Deviation

GIPS standard 5.A.2 requires firms to present the three-year annualized ex-post standard deviation, using monthly returns, for the composite and the benchmark. If the firm determines that the three-year ex-post is irrelevant or inappropriate for a given strategy, reasoning supporting this conclusion must be disclosed (GIPS Standard 4.A.34). Firms electing not to present the three-year annualized ex-post are required to present an additional three-year ex-post risk measure that is available and appropriate.

Firms already presenting the three-year annualized ex-post are not required to change anything to their compliant presentations. The proposed Guidance Statement will eliminate a firm’s ability to elect to not present the three-year annualized standard deviation. Under the new guidance, all firms will be required to present the three-year annualized ex-post standard deviation as well as disclose whether the risk measure was calculated using gross or net returns. GIPS standard 5.A.2 does not currently address disclosure of using gross versus net returns in the calculations. Firms will still be encouraged to present additional ex-post risk measures, and will be required to describe the risk measure and its relevance to the strategy.

Adequacy of Risk Description within Composite Definitions 

While GIPS Standard 4.A.3 related to defining composites does not explicitly require firms to disclose qualitative information about risk, firms must include any significant features about an investment strategy to help prospective investors make informed decisions.

Prior to the proposed Guidance Statement on Risk, there was little guidance within the standards on how firms should address risk within composite descriptions. The newly-proposed Guidance Statement will require firms to assess the impact and significance of risk as it relates to a composite’s investment mandate, objective, and strategy. Firms will need to assess strategy features including, but not limited to, investment concentration, correlation of returns, changes in liquidity, exposure to counterparty creditworthiness risk, and the ability to employ significant leverage in portfolio. The nature and significance of risk features within a composite will drive the complexity of the risk description disclosure within the composite definition.

Your Opinion Matters

Like all new GIPS pronouncements, the proposed Guidance Statement on Risk will be open for public comment until September 26, 2017. We encourage all firms to weigh in on the guidance statement as all will be subject to the provisions on risk and the adequacy of risk disclosures. The draft of the guidance statement can be found here:

We would be pleased to provide further information related to this subject. For more information, contact Thomas A. Peters, Director, Audit & Accounting at or Joshua E. Kramer, Senior Accountant, Audit & Accounting at

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