Extracted Performance Requirements

To meet the SEC extracted performance requirements, you cannot show performance for a subset of investments (the “winners”) in an advertisement unless you also present the performance of the total portfolio from which that subset was taken. Build this into your marketing review workflow: require portfolio-level performance alongside any extracted sleeve, with clear methodology and retained back-up. (17 CFR § 275.206(4)-1(d)(2))

Key takeaways:

• If you advertise extracted performance, you must also show total portfolio performance from the same portfolio. (17 CFR § 275.206(4)-1(d)(2))
• Operationalize with pre-approved templates, mandatory data packs, and a compliance sign-off checklist keyed to the portfolio source. (17 CFR § 275.206(4)-1(d)(2))
• Keep defensible evidence: calculations, portfolio definitions, approval records, and the final ad as disseminated. (17 CFR § 275.206(4)-1(d)(2))

“Extracted performance” is a common marketing risk area because it invites cherry-picking. A portfolio manager can always find a subset of holdings, trades, or sleeves that look strong over a chosen period. The SEC’s Marketing Rule addresses this by requiring context: if you show extracted performance in an advertisement, you must also present the performance of the total portfolio that the extracted results came from. (17 CFR § 275.206(4)-1(d)(2))

For a CCO or GRC lead, the work is less about debating definitions and more about building a repeatable gate that prevents noncompliant ads from leaving the building. That gate needs (1) a clear internal definition of “total portfolio” for each product strategy and composite, (2) a standard way to calculate and present both extracted and total portfolio performance together, and (3) an evidence package that survives an exam.

This page gives you requirement-level implementation guidance you can drop into your marketing review process, including artifacts to retain, exam questions to anticipate, and a practical execution plan.

Regulatory text

Rule requirement (verbatim excerpt): “An advertisement may not include extracted performance unless it presents the performance results of the total portfolio from which the performance was extracted.” (17 CFR § 275.206(4)-1(d)(2))

Operator interpretation: If your ad shows performance for a subset of investments pulled from a broader portfolio (for example, a “top contributors” list, a sleeve, or a selection of positions), the same ad must also show the performance of the full portfolio that subset came from. The total portfolio performance cannot be omitted, placed in a separate document, or separated in a way that breaks the ad’s presentation. Your workflow should treat the total portfolio performance as a required companion disclosure, not an optional footnote. (17 CFR § 275.206(4)-1(d)(2))

Plain-English interpretation (what the SEC is trying to stop)

Extracted performance is inherently prone to selective presentation: it highlights part of a portfolio that looks good while the rest of the portfolio may dilute or offset those results. The requirement forces you to pair the subset with the portfolio-level outcome so a recipient can see whether the extracted slice is representative or an outlier. (17 CFR § 275.206(4)-1(d)(2))

A practical internal standard that works well in review meetings:

• If a reasonable reader could interpret the subset as indicative of overall results, treat it as extracted performance and require total portfolio performance alongside it. (17 CFR § 275.206(4)-1(d)(2))

Who it applies to (entity and operational context)

Covered entities: Investment advisers and fund managers producing or approving advertisements under the SEC Marketing Rule. (17 CFR § 275.206(4)-1(d)(2))

Where it shows up operationally:

• Pitch decks, RFIs/RFP responses treated as advertisements, factsheets, webpages, investor letters used for marketing, and social posts that reference performance of a subset of holdings.
• “Case studies” that include investment results for a selected group of positions.
• “Top contributors/detractors” pages that include quantified performance for selected holdings.

Teams involved:

• Marketing/IR content owners (create and distribute)
• Portfolio management/analytics (calculate performance; define portfolio source)
• Compliance (approve content; enforce required pairing and evidence retention)

What you actually need to do (step-by-step)

Step 1: Define “total portfolio” sources you will allow

Create an approved list of portfolio sources that can serve as the “total portfolio” anchor:

• Account/portfolio (single client account)
• Strategy sleeve (if it is itself the total portfolio being managed for that mandate)
• Composite (if you market composite performance and the extracted set is drawn from that composite’s holdings)

Document the definition for each marketed strategy: what system is the book of record, what constitutes the investable universe, and what dates/periods are supported. This prevents a reviewer from debating portfolio boundaries ad-by-ad. (17 CFR § 275.206(4)-1(d)(2))

Control: The ad request intake form must identify the portfolio source ID (account, sleeve, or composite) and time period for both extracted and total portfolio performance. No source ID, no review. (17 CFR § 275.206(4)-1(d)(2))

Step 2: Create a decision rule for “is this extracted performance?”

Add a simple reviewer checklist item:

• Does the content present performance for fewer than all investments in the referenced portfolio?
• Does it quantify results for a subset (return, contribution, IRR, MOIC, P&L) that could be construed as performance? If yes, treat as extracted performance and require total portfolio performance in the same advertisement. (17 CFR § 275.206(4)-1(d)(2))

Step 3: Build “paired presentation” templates (make compliance the default)

Pre-approve layouts where extracted performance cannot be inserted without also inserting total portfolio performance:

• A two-panel chart: “Extracted subset performance” next to “Total portfolio performance”
• A contributors table that includes a “Total portfolio” row or a clearly adjacent portfolio performance summary

Practical drafting requirement: Put the total portfolio performance on the same page/screen as the extracted figures where possible. If your channels force pagination, keep them adjacent and clearly labeled so the reader encounters them together as part of the same ad experience. This maps to the rule’s “may not include … unless it presents…” structure. (17 CFR § 275.206(4)-1(d)(2))

Step 4: Standardize methodology disclosures that keep the pairing honest

Even though the excerpt is short, reviewers should require enough context to prevent misleading impressions:

• Identify the portfolio from which results were extracted (name/strategy/composite identifier).
• Explain what the extracted subset is (for example, “top contributors by contribution” or “positions initiated in the period”).
• State the time period applied to both extracted and total portfolio performance and keep them aligned unless there is a documented rationale.

If extracted and total portfolio performance use different calculation conventions, your reviewer should stop the ad until methodology is aligned or clearly explained, because the “paired” presentation can still mislead if it compares unlike measures. (17 CFR § 275.206(4)-1(d)(2))

Step 5: Implement a pre-dissemination approval gate

Operationalize this as a mandatory control in your ad review workflow:

• Marketing attestation: “This content includes extracted performance.” Yes/No.
• If Yes, the workflow requires upload of the total portfolio performance exhibit drawn from the same portfolio source.
• Compliance sign-off: Confirm the ad presents total portfolio performance alongside extracted performance and labels both clearly. (17 CFR § 275.206(4)-1(d)(2))

If you use Daydream to run marketing compliance workflows, configure a rule-based intake so “extracted performance = yes” automatically blocks approval until (1) the portfolio source is selected and (2) the paired total portfolio exhibit and calculation back-up are attached.

Step 6: Lock evidence retention to the ad as disseminated

Save the final version exactly as delivered (PDF, webpage capture, email body, slide deck) plus the back-up package described below. Tie retention to a unique ad ID so you can reproduce what a prospect saw and what compliance approved. (17 CFR § 275.206(4)-1(d)(2))

Required evidence and artifacts to retain

Build an “Extracted Performance Evidence Pack” and make it required whenever extracted performance appears:

1. Final advertisement as disseminated (the actual PDF/deck/web capture).
2. Portfolio source record showing the “total portfolio” population used (account/composite ID and definition).
3. Performance calculation support for:
   • Extracted subset performance (positions included, selection method, calculation output)
   • Total portfolio performance (same time period; calculation output)
4. Methodology notes describing:
   • How the subset was selected (objective rule, not ad hoc)
   • Any exclusions and the rationale
5. Compliance approval record (review comments, approvals, timestamps, approver name/role).
6. Version history showing changes made during review, especially if compliance required pairing or labeling changes.

Your evidence should let an examiner answer two questions quickly: “What was shown?” and “Was the subset tied to the correct total portfolio?” (17 CFR § 275.206(4)-1(d)(2))

Common exam/audit questions and hangups

Expect reviewers (internal audit, consultants, or SEC exam staff) to probe:

• “Show me every ad that includes extracted performance.” If you cannot inventory them, your control is not operational.
• “Where is the total portfolio performance displayed in this ad?” They will look for proximity and clarity. (17 CFR § 275.206(4)-1(d)(2))
• “How did you choose the extracted subset?” A subjective selection process is a red flag; require a documented selection rule.
• “Prove the subset came from this portfolio.” That is why you retain holdings extracts, identifiers, and calculation logs.
• “Who approved this and what did they review?” Approval records must show the check occurred, not just that a ticket closed.

Frequent implementation mistakes (and how to avoid them)

Mistake	Why it fails	How to fix
Showing extracted results with no total portfolio performance	Directly conflicts with the requirement. (17 CFR § 275.206(4)-1(d)(2))	Make total portfolio performance a required field/object in the template and workflow.
Putting total portfolio performance in a “separate handout”	The ad containing extracted performance must present total portfolio performance. (17 CFR § 275.206(4)-1(d)(2))	Treat the handout as part of the same advertisement only if distributed together; otherwise embed the total portfolio figure.
Using a different time period for total portfolio vs extracted	Creates a comparison that can mislead even if both are present.	Align periods by default; require written rationale and compliance review for exceptions.
Undefined “total portfolio”	Reviewers cannot confirm the portfolio boundary.	Maintain a controlled list of portfolio definitions and composite policies; require selection from that list.
No calculation back-up	You cannot prove accuracy or linkage.	Require an evidence pack upload before approval is possible.

Enforcement context and risk implications

No public enforcement cases were provided in the source catalog for this requirement, so this page does not cite specific actions. The practical risk is still straightforward: extracted performance is a high-scrutiny presentation because it can mislead by omission. If an examiner believes your ads highlight favorable subsets without adequate total portfolio context, the firm faces exam findings, remediation demands, and potential referral risk depending on broader facts. (17 CFR § 275.206(4)-1(d)(2))

Practical 30/60/90-day execution plan

First 30 days (stabilize and stop the obvious misses)

• Inventory current advertisements and templates where extracted performance appears or could appear (contributors tables, case studies, “best ideas” pages).
• Add a hard check to the marketing review intake: “Contains extracted performance?” If yes, require total portfolio performance attachment and portfolio source ID before review starts. (17 CFR § 275.206(4)-1(d)(2))
• Publish a one-page reviewer job aid: definition, examples, and “no total portfolio performance = reject.” (17 CFR § 275.206(4)-1(d)(2))

Next 60 days (standardize and make it repeatable)

• Build pre-approved paired templates for the top channels (deck, factsheet, web module).
• Create the Extracted Performance Evidence Pack checklist and embed it into your ticketing/workflow tool.
• Train marketing and IR on the decision rule and show “before/after” examples of compliant pairing. (17 CFR § 275.206(4)-1(d)(2))

By 90 days (prove it works)

• Run a lookback test: sample recently approved ads and confirm the evidence pack exists and the total portfolio is correctly presented.
• Add a KPI-style operational metric (qualitative is fine): “ads with extracted performance missing required evidence” and drive it toward zero through workflow gating.
• If you use Daydream, configure structured fields for portfolio source, subset definition, period, and required attachments so extracted-performance items cannot be approved without the paired portfolio exhibit.

Frequently Asked Questions

What counts as “extracted performance” in practice?

Any performance shown for fewer than all investments in a portfolio, where the subset is drawn from a broader portfolio and presented as performance. If you are showing “top contributors” or a sleeve’s returns while the full portfolio exists, treat it as extracted performance. (17 CFR § 275.206(4)-1(d)(2))

Can we show extracted performance if we also show the benchmark?

A benchmark does not replace total portfolio performance. The rule condition is that the ad presents the performance of the total portfolio from which the results were extracted. (17 CFR § 275.206(4)-1(d)(2))

Does total portfolio performance have to be on the same page as the extracted table?

The rule requires the advertisement to present total portfolio performance when extracted performance is included. A defensible practice is to keep them adjacent and clearly labeled so a reader encounters them together. (17 CFR § 275.206(4)-1(d)(2))

What if the extracted subset is based on a model portfolio, not an actual client account?

The requirement still turns on whether there is a “total portfolio from which the performance was extracted.” Define the “total portfolio” as the relevant model portfolio and present its total performance alongside the extracted subset. (17 CFR § 275.206(4)-1(d)(2))

Can we exclude certain positions from the “total portfolio” for the comparison?

If you exclude positions, you risk no longer presenting the “total portfolio” from which the subset was extracted. Treat exclusions as a stop-and-review item and require written methodology and compliance approval before dissemination. (17 CFR § 275.206(4)-1(d)(2))

What evidence do we need to keep to defend extracted performance in an exam?

Keep the final ad, the portfolio source definition, calculation outputs for both extracted and total portfolio performance, the subset selection rule, and compliance approvals. The goal is to prove the subset came from the identified portfolio and that the portfolio performance was presented in the same ad. (17 CFR § 275.206(4)-1(d)(2))