Overview
PPMS software is able to compute after-tax performance for both fixed income and equity portfolios.
Calculating after-tax performance requires four types of data:
- The applicable tax rates for each portfolio
- The valuation of the portfolio at various points in time (the major determinant of pre-tax performance)
- The transactions which have occurred during the measurement period
- A linkage between transaction types and their tax status
The GIPS™ after tax guidelines recognize that an investment manager should not
be penalized for taxes related to events out of his control. The adjustments
performed by PPMS add back a portion of the resulting capital gain taxes based
on a ratio of unrealized gains in the total portfolio at the time.
Include state and local taxes if you like
State and local taxes are generally deductible for federal tax purposes. PPMS
takes this relationship into account and includes a default table of maximum
state tax rates for all fifty states plus DC, Puerto Rico and the Virgin Islands.
Users can elect to include state taxes along with federal or not. The final
assumed tax rates are up to you, tailored uniquely to the client's situation.
Revaluation at Significant Cash Flows, Adjustment for Non-Discretionary Capital Gains
Although not required, performance is most accurately computed when portfolios are
revalued on the dates of significant cash flows. PPMS software allows any number
of such revaluations during the performance period and automatically geometrically
links the sub-period returns. Client withdrawals which require security sales and
associated capital gain taxes may be identified for "non-discretionary capital gain
adjustment."
Once your portfolios are set up and the required data is in place, using the PPMS system at
www.perfAT.com
is both fast and straight-forward. Simply log on as a registered user with your
password, click "Calculate Performance" and select the portfolio you wish to see.
The resulting report may be printed on any standard computer, and the internet-based
format makes it platform independent. Click BACK in your browser to return to the prior
menu and select a different month, quarter, or a full year. Performance is actually
recalculated on the fly based on your data to allow for any on-line transactions or
valuation maintenance that you might require. This
sample output
shows the application of maximum individual tax rates to a portfolio based in
California with various types of income and capital gain transactions. All of the
output data in these reports is actually stored in the valuation records for your
portfolios, including any mid-period valuation records. This makes possible more
detailed exploration of how the calculation was made in the event of client or
verifier questions.
Exchanging Data with PPMS is fast and easy
The Batch Operations button on the main menu allows users to import portfolio,
transaction and valuation data to PPMS and export performance results back to
their home systems by using customized sub-directories and ASP Simple Upload,
a protocol similar to FTP. Although batches of new portfolios can be created
only via Excel spreadsheets, transaction and valuation data may be imported
directly from your accounting system (depending on export format).
Once the new valuation file is read, the procedure will automatically update
your portfolios' valuation(s). It will calculate before and after-tax
performance for each of the portfolios and each of the time periods specified.
Importantly, if you have repeated any valuation periods from prior uploads,
the new ones will automatically replace the old, thus allowing for any required
valuation maintenance and performance recalculation. However, this is not true
of transactions. All transactions in the file will be appended to your existing
data (since it is quite possible to have multiple transactions of the same type
and even the same ticker on the same date). Therefore, only new transactions
should be uploaded.
Technical Details
PPMS's software runs on a Microsoft 2000 server under SQL Server 2000. It can
be accessed either via the web or by installing a stand-alone package on your
premises. If accessing via the web, security is enhanced by never requiring
actual client names, tax ID numbers, or even security identifiers. Data
exchanged is simply a string of numbers in and another string out. Being
internet based, the software has the advantage of being accessible to
individuals when at home or on the road. The software is independent of
platform and can be run from a UNIX or Apple environment as well as from
Microsoft Windows.
Any performance calculation starts with portfolio valuation at beginning and
end points. The user provides this data in one of a number of file structures,
ranging from Excel spreadsheets to FIX protocol transmissions or custom formats.
The file may contain a single portfolio for many periods or thousands of
portfolios for a single period. Importantly, the valuations must include
amortized interest and OID accretion if the client wishes to use this type of
accounting.
After-tax performance requires a complete stream of transactions during the
month, quarter, or year. The user supplies these in the same file structure.
Dividends, amortized interest, and other income may either be included
separately with appropriate dates and types or lumped into sums for the period.
Cash flows into or out of the portfolio and trades are more accurately
processed as individual items. Users must have the ability to link sell
transactions to original tax lot cost so that trades include both proceeds and
associated cost and purchase date in the same record.
PPMS output includes, at the user's option, both printed reporting and a file
containing a summary of income by type and associated taxes. Both pre-tax
and after-tax performance are calculated and stored for the client so that
future reports can include longer period calculations (monthly, quarterly,
YTD, last 12 months, etc.). File transfer enables the user to combine multiple
portfolios into composites for marketing or analytical purposes.
