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2015, Study Session # 1, Reading # 4

“GLOBAL INVESTMENT PERFORMANCE STANDARDS (GIPS®)”


IMF = Investment
Management
Firms 4.a GIPS Objectives
CVG = Country Version
of GIPS
 Global acceptance of calculation & presentation standards (fair & full
disclosure).
 Consistent & accurate investment performance data data in areas of reporting,
records, marketing & presentations.
 To promote fair competition among IMFs & global self regulation.

Key Characteristics of GIPS

 Define “firm” (reflect distinct business entity).


 Ensure fair representation of results & full disclosure.
 Include portfolios (fee-paying, discretionary) in composite for a minimum of five
years or since inception. Add annual performance each year to minimum of ten
years.
 Use certain calculation & presentation standards & make disclosures.
 GIPS contain both required & recommended provision.
 Present all additional & supplemental information (encouraged).
 Input data must be accurate & no partial compliance.
 Follow local law in case of conflict with GIPS (disclose the conflict).
 Certain recommendation may become requirements.
 Private equity & real estate provisions are to be applied to these asset classes.

Fundamental of Compliance

Definition of the Firm

Requirements Recommendations

 Total firm assets include total MV of Include broadest definition of the firm (all
discretionary & non-discretionary assets (fee geographical offices).
paying & non-fee paying).
 If firm has discretion over sub-advisor
selection (include sub-advisor’s
performance).
 Historical composite results will not change
(if firm changes its organization).

Document Polices & Procedures (requirements)

Document, in writing, polices & procedures the


firm uses to comply with GIPS.

Claim of Compliance (requirements)

 Following accordance statement must used;


“[insert name of firm] has prepared and presented this report in
compliance with the Global investment performance standards
(GIPS®).”
 No partial compliance & the statement “calculated in accordance with
GIPS” is not used for calculation methodologies & individual clients
(unless reporting portfolio results directly to that client).

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2015, Study Session # 1, Reading # 4

4.a Firm Fundamental Responsibilities (requirements)

 Compliant presentation to all prospects.


 List of composite descriptions to all prospects that make a request (list
discontinued composite for at least 5 years).
 Separate noncompliant firms from GIPS compliant firm in case of joint
marketing.
 Be aware of updates, guidance statements & the like.

4.b

 Definition of firm ⇒ corporation, subsidiary or division held out to


client as a distinct business entity.
 No non-compliant performance is presented for any periods after Jan
1st, 2000.

4.c

 Firms may claim GIPS compliance for any CVG-compliant results prior
to Jan1, 2006.
 Include CVG-compliant data to GIPS compliant until a minimum of ten
years of compliant performance is presented.

4.d Major Sections of GIPS

0. Fundamental of Compliance 1. Input Data 2. Calculation Methodology

 Fundamental issues include: Should be consistent for full, fair  Certain methodologies for portfolio
 Firm definition & documentation & comparable presentations. return calculation & certain other for
of policies & procedures. composite return calculations.
 Complying with GIPS updates.  Uniformity is required for
 Appropriate compliance claim & comparability.
verification statement.

3. Composite Construction 4. Disclosure 5. Presentation & Reporting

 Assets-weighted composite for fair  Disclosure about performance & Incorporate necessary return &
presentation. policies. disclosure information according
 Composite returns are asset-weighted  There are some disclosures that all to requirements of GIPS
avg of returns on the portfolios firms must make while there are standards.
included in each composite. others which are not applicable to all
circumstances for all firms.

6. Real Estate 7. Private Equity 8. Warp Fee/Separately Managed Account (SMA) Portfolios

Certain provisions in Sections 0-5 do  Must be valued according to GIPS Some provisions in section 0-5 are supplemented or replaced
not apply to all real estate investments Private Equity Valuation Principles. by the provisions specified in this section.
or are superseded by provisions in this  Open-end or evergreen fund follow
section. regular GIPS.

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