Taking Your Track Record with You

Achieving the investment returns isn’t enough . . .

All of you portfolio managers, proprietary traders and research analysts accepting positions with new firms or striking out on your own should know that your track records are not automatically portable to your new situations.

The SEC has a lot to say about whether and how you can use your returns.

For one thing, your track record belongs to your current employer and not to you. If you’re thinking of using it, you need permission from your employer to do so. Interestingly, if you get that permission, you and your former employer may both be able to use the same track record (with each of you footnoting your separation from the other).

You also need a complete and demonstrable electronic or physical record of all the transactions included in your investment returns, together with substantiating performance calculations. These records are also the proprietary property of your employer, so you need its permission to access, copy or remove them. Your future investors may also require that your track record be independently audited.

Most importantly, you need to be able to demonstrate that you were primarily responsible for the achievement of your track record. If it was a portfolio management team or investment committee that achieved the returns, the key members of that team or committee will need to continue in their primary roles at the new firm. If any member of the team or committee doesn’t stay with the relocating group, for example, that member cannot have had veto power over investment decisions.

If you overcome these three hurdles, you must then provide very specific disclosure relating to the hedge funds or separate account composites included in your performance figures and fulfill even more technical requirements if past and future performance results are to be linked, particularly if your new firm claims compliance with the Global Investment Performance Standards (GIPS) of the CFA Institute. In addition, your performance presentations are, in all cases, still subject to the SEC’s general advertising rules (see Performance Presentations, June 2011).

Of course, all of the above applies when you want to show your track record to future clients. If, for some reason, you’d prefer to hide it, antifraud and GIPS considerations may paradoxically preclude you from doing so.

  • Sean

    You should read about Elliott Wislar, the CEO at Clearbrook Global Advisors.

  • Sean

    You can read more about that here as well