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About Portfolio Inclusion Rules

The Performance Composite Builder adds or removes constituents from composites systematically based on defined inclusion rules specific to each composite. You create the inclusion criteria rule within Entity Maintenance.

You can use the following distinct types of data when defining a composite's inclusion criteria:

• Entity. Standard Entity Information.

• Entity Characteristics. Custom entity attributes.

• Constituent Benchmark Assignments. Benchmark information such as 'Primary Benchmark Name = BenchmarkABC.' For more information, see Define Composite Criteria Based on Benchmark Assignments.

• Position. Fund level market value and others.

• Performance. Statistics such as 'Pct of cash' or 'own derivatives'. For more information, see Define Composite Criteria Using Performance Fields.

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Set Up Portfolio Inclusion Rules

You can set up the portfolio inclusion rules for the Performance Composite using the GIPS Composite workspace.

To set up portfolio inclusion rules for a composite:

1. From any Eagle window, click the Eagle Navigator button to access the Eagle Navigator.

2. Enter GIPS in the Start Search text box.

3. Click the GIPS Composites (Performance Center) link to access the GIPS Composites module.
   You see the Performance Center and the GIPS Composites workspace.

4. In the GIPS Composites workspace, select a Performance composite and click Edit on the ribbon.
   You see the Edit Entity workspace with five links at the top of the page. By default, the Details link is selected.

5. Click the GIPS Composite link.
   You see the GIPS Composite page which has three sections.
   Auto Build Options. The top section is only used if you are using the system to automatically classify portfolios into composites. You can define a composite definition rule by clicking Define which launches the Logic Builder. This topic is covered later, in Set Up Portfolio Inclusion Rules.
   Performance Settings. The middle section contains data parameters that you must set in order for the composite build process to recognize performance or holdings data associated with a composite definition rule. For more information, see Define Composite Criteria Using Performance Fields.
   Membership. The bottom section shows you the current composite constituents and allows you to manually add, edit, or delete composite/constituent relationships. The start and stop dates that you set on the bottom of the tab provide the key information used by the single-period return calculator to determine what funds to include in a composite return calculation for a particular period. See Determination of Composite Constituents for a description of how Eagle Performance uses these dates.

6. If you want to have the system automatically classify portfolios into composites, click the Entity Criteria Define button in the Auto Build section of the page.
   You see the Logic Builder in a new window.

7. Using the Logic Builder, enter the portfolio inclusion rules for the composite, or composite definition. You can define composites using one or more of the following: Static entity definition data. Benchmark assignment data, which change over time, such as the name of the constituent's primary benchmark. For additional information about using benchmark related criteria, see Define Composite Criteria Based on Benchmark Assignments. Holdings and/or performance data, which change over time, such as the portfolio market as of the beginning of the period. Note that the process uses the market value as of the effective date for which the process is run.
   For additional information about using Performance fields, see Define Composite Criteria Using Performance Fields. Parentheses for precedence and a combination of the conjunctions, AND and OR.
   If you use Performance or Holdings type fields in portfolio inclusion rules, the Performance Composite Builder performs on-the-fly currency conversion in cases where the composite and potential constituent portfolios do not share a common base currency. For information about currency conversion setup and how the conversion process works, see GIPS Composite Management Configuration.

8. When you finish entering the portfolio inclusion rule, click Save and Close.
   You see the rule you defined in the Auto Build section of the page.

9. If the portfolio inclusion rule for the composite includes Performance or Holding type fields, in the Performance Settings section of the Composite page define the following fields to allow the composite build process to recognize performance data:
   Source Rule. Choose a source rule that has the required source specified for performance data.
   Performance Model. Choose the performance model (also called performance dictionary) that coincides with the data you want to use. Note that the composite build process only interrogates data at the total fund level. Therefore, while you can use a multi-level model, it is only the fund level record that is analyzed.
   Frequency. Select the return frequency (Daily, Monthly, or Quarterly). The frequency should match the committed PERF_FREQ_CODE on the records you want to use. For example if you calculate and commit fund returns monthly, the PERF_FREQ_CODE is M and you choose Monthly on this window.
   Return Status Type. Choose either preliminary or final depending on your needs. If you choose final, only 'finalized' performance records are considered (where status_flag from PERF_SUMMARY = F). If you choose preliminary, both preliminary (status_flag = P) and final records are considered.
   Date Rule. Choose a date rule that resolves to the performance record you want to use. For example, in most cases, monthly returns exist on the calendar month end date. If you build composites on calendar month ends as well, that means that, for example, you would have a performance record on 1/31/2008 and you would be executing the composite build on the same date. Therefore you would choose a date rule that brings back the same date. Date rules can be built right within the general reporting module in PACE. Details on date rules are covered in the PACE Reporting Reference Guide.
   The date rule uses the effective date of the composite build as an input. Therefore if you run a build on 1/31/08 and the date rule is set to bring back the same date, the build looks for a performance record as of 1/31/08.
   Conversely, if you run builds on the 1st of the month, you need a date rule that goes back one day. That way when you run the build on 2/1/08, the process knows it needs to look for performance data as of 1/31/08.
   For additional information about using Performance fields, see Define Composite Criteria Using Performance Fields.

10. Continue defining information for the composite, as needed, and click Save to save your changes.
    After you run the Performance Composite Builder process, the constituent entities that met the criteria associated with the portfolio inclusion rule and the build process appear in the bottom section of the Composite page.

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Define Composite Criteria Based on Benchmark Assignments

You can include a benchmark or benchmarks as part of the portfolio inclusion rule used by the Performance Composite Builder.

For example, you can define a portfolio inclusion rule that assigns constituents to the composite if the constituent's primary benchmark name is the Domestic Equity Index. Or, you can define a rule that assigns constituents to a composite if the constituent's primary benchmark name is Domestic Equity Index OR Domestic Equity Large Cap Index AND the secondary benchmark is Equity Value Index. You can also specify other benchmark criteria, such as Entity ID rather than Entity Name.

For example, you can define a portfolio inclusion rule that includes any portfolio where the primary benchmark is the Domestic Equity Index. In this case, the Performance Composite Builder uses the benchmark information stored in the ENTITY_HIST table, and then queries the benchmark assignments stored in the ENTITY_DETAILS_HISTORY table. The Performance Composite Builder adds constituents to the composite if the portfolio's primary benchmark is Domestic Equity Index for the selected effective date of the build. The Performance Composite Builder also removes constituents from the composite if the portfolio's primary benchmark assignment stored in the ENTITY_DETAILS_HISTORY table is no longer Domestic Equity Index as of the selected effective date of the build.

To set up a portfolio inclusion rule based for this example of a benchmark assignment, you select an Entity type field attribute named Primary Benchmark Name. Then you need to include portfolios having their primary benchmark name set to a value of Domestic Equity Index. The resulting statement is Primary Benchmark Name = Domestic Equity Index.

When you run the Performance Composite Builder and it encounters a portfolio inclusion rule that references a benchmark, the system does the following:

• Retrieves values for the benchmark entity from the ENTITY_HIST table as of the build effective date. (In this example, it identifies the benchmark entity with a long name of Domestic Equity Index as of the build date.)

• Queries the ENTITY_DETAILS_HISTORY table to identify the benchmark assignments in place as of the build effective date. (In this example, it looks at the benchmark assignments as of the build date for the entity with a long name of Domestic Equity Index where the portfolio-to-benchmark relationship indicates Domestic Equity Index is the Primary Comparison Index.)

• Compares the values in the prior two steps with the constituents assigned to the composite as of the build date, and determines the entities that do and do not match.

• Performs the inclusion/exclusion logic. It assigns the portfolio to the composite as of the build effective date if it meets the rule criteria. It removes the portfolio from the composite as of the build effective date if it no longer meets the rule criteria.

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Define Composite Criteria Using Performance Fields

The Performance Composite Builder supports the use of criteria based on entity, entity characteristics and/or summary level position data. PACE also supports the use of fund level performance data (data stored in the PERFORM database) when defining composite ownership rules. The use of performance data for composites criteria inclusion is optional.

For example, assume that your performance record includes a number representing the percent of the fund invested in cash. This value could be used to define the criteria for a composite. For example: Where Percent of Cash <= 5.00%

When you are defining the inclusion rule for a composite, you can choose fields from the Performance folder. These are Performance database field attributes. Custom fields such as Performance Analysis and Performance Link Analysis types are not supported in this feature. If you use performance data in the composite criteria definition, you must also specify parameters for the data, as described in Set Up Portfolio Inclusion Rules.

The build process supports the use of numeric, float, and varchar fields from both PERF_SUMMARY and PERF_SEC_RETURNS tables. Note that only the total fund level performance data is supported. The rule must include at least one entity field, but the remaining criteria can be made up of all performance data or a combination that includes entity characteristics and/or fund level position data.

The rule is used by the entity build process to set start and stop dates to the funds that move in and out of the composite over time as characteristics change.