We were recently contacted regarding the appropriate date to use for a fund’s inception. This caused me to reflect a bit, and I thought I’d touch on this briefly. There are essentially three dates you may want to concern yourself with:
- Inception Date: this is the date the account incepted (Wow, did I actually write that?). It is derived from the Latin inceptus, the past participle of incipere: to begin, undertake. And so, it’s the beginning or start of the account. It is typically the date that the funds are first available to be managed.
- Performance Start Date: this is the date that the manager begins to be tracked for performance. It may be sensitive to two things. First, the point at which enough funds are in the account so that the manager can execute his/her strategy. Funds sometimes come into a new account over several days, and so it may take some time to reach the minimum threshold or for the account to be “fully funded.” It would arguably be unfair to start a track record if the account is not yet able to be invested as intended. The second factor could be the point at which the account is “fully invested.” Depending on the liquidity of the market, this may take a single day or several months. It’s not unusual to have a discussion with the client to agree upon what this date will be.
- Composite Entrance Date: if the firm claims compliance with GIPS(R) (Global Investment Performance Standards), they must have a policy that specifies when accounts are added to composites. Some immediately add a new account, while others delay. Liquidity is typically a factor in determining how long the lag time will be.
It’s important that the firm have policies in place to assist in determining what these dates will be for each account.