Global Investment Performance Standards (GIPS

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Global Investment Performance Standards (GIPS)
The Global Passport for Asset Managers
Presentation to Asian Security Analysts
Federation 8 November 2006 Seoul, South Korea
Yoh Kuwabara
GIPS Executive Committee Verification/Practitioner
Subcommittee Chair Director, Misuzu Audit
Corporation
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GIPS Presentation

• Background
• History
• Contents
• Organization
• Initiatives
• Future Plan
• Q A

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GIPS Objectives
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1. Background

• Fraudulent presentation of investment performance

• Cherry picking
• Apple to Orange Comparison
• Insufficient, misleading disclosure

They had been able before we hired them!?
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GIPS Presentation

• Background
• History
• Contents
• Organization
• Initiatives
• Future Plan
• Q A

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2. History

1. Pre-GIPS Era
2. GIPS1999
3. Introducing CVG/TG
4. GIPS2005
5. Status Quo September 2006

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2-A) Pre-GIPS Era

• 1987Performance Presentation Standards
  established for USA and Canada1993Revised to
  AIMR-PPS
• Several countries followed suit

1992 The Pension Fund Investment Performance
Code (UK) 1997 SPPS (Switzerland) 1998 DVFA
Standards (Germany) 1998 AIPMPS
(Australia) 1998 VBA-PPS (Netherlands) 1999
SAAJ-IPS (Japan)
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2-B) GIPS1999

• 1995 EFFAS Permanent Commission on Performance
  Measurement advocated need for a global standard
• 1995AIMR-PPS Global Implementation Committee
  established
• 1998 Exposure Draft of GIPS released for public
  comment
• 1999 GIPS finalized (February)

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2-C) Introducing CVG/TG

• 2000 GIPS Adoption at Country Level introduced
  IPC endorsement of CVG and TG
• Countries introduced CVGs Australia, Ireland,
  Italy, Japan, South Africa, Switzerland, UK,
  USA/Canada

CVG Country Version of GIPS. Minimum addition to
GIPS based on country specific laws/regulations
and/or established practice is allowed TG
Translation of GIPS. No addition, no modification
allowed except for a wrapper
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2-D) GIPS2005
Effective 1 January 2006

• Some Recommendations upgraded to Requirements
• Added new provisions for Fees, Real Estate and
  Private Equity
• Added as new provisions some essence of Guidance
  Statements
• Added some global best practices
• Proposed Convergence to GIPS of CVGs

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2-E) Status Quo Sept. 06

• 27 countries and/or regions adopted GIPS

Australia France Poland
Hong Kong Germany Portugal
Japan Hungary Spain
New Zealand Ireland South Africa
Singapore Italy Sweden
Pacific Islands Liechtenstein Switzerland
Austria Luxembourg UK
Belgium Netherlands USA/Canada
Denmark Norway
Republic of Palau, Republic of the Marshall
Islands, Federated States of Micronesia,
Commonwealth of the Northern Marianas Islands,
Territory of Guam
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GIPS Presentation

• Background
• History
• Contents
• Organization
• Initiatives
• Future Plan
• Q A

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3. Contents

• Concept
• GIPS Provisions
• Key Requirements
• Guidance Statements
• Verification

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3-A) Concept

• Self-regulatory nature
• Vision
• Fundamental principle Fair representation and
  full disclosure

A global investment performance standard leads
to readily accepted presentations of investment
performance that (1) present performance results
that are readily comparable among investment
management firms without regard to geographical
location and (2) facilitate dialogue between
investment managers and their prospective clients
about the critical issues of how investment
management firm achieved performance results and
determines future investment strategies. (GIPS
I. 5.)
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3-B) GIPS Provisions
Provisions 0. Fundamentals of Compliance 1.
Input Data 2. Calculation Methodology 3.
Composite Construction 4. Disclosures 5.
Presentation and Reporting 6. Rea Estate 7.
Private Equity Appendices A Sample
GIPS-Compliant Presentation B Sample List and
Description of Composites C GIPS Advertising
Guidelines D Private Equity Valuation
Principles E GIPS Glossary
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3-C) Key Requirements

• Firmwide compliance(3.A.1)
• Composite performance(2.A.3)
• Use of Time-weighted Rate of Return(2.A.2)
• No simulated and/or back-tested return(3.A.8)
• Minimum 5 years of compliant performance
  data(5.A.1.a)
• All supporting data must be kept(1.A.1)
• Document policies and procedures to establish and
  maintain compliance(0.A.6)

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3-C) Key Requirements-Contd

• Important policies must be defined by firms

• Definition of the entity to claim compliance
  (FIRM)
• Definition of investment discretion
• Definition of composites

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3-D) Guidance Statements
Calculation Methodology Use of Supplemental Information
Composite Definition Verification
Country-Specific Taxation Issues Verifier Independence
Definition of the Firm Wrap Fee/SMA Portfolios
Performance Examination (Error Correction)
Performance Record Portability (Leverage and Derivatives)
Treatment of Carve-Out (Portfolio Record Keeping)
Treatment of Significant Cash Flows
Awaiting finalization
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3-E) Verification

• A review by an independent third-party verifier
  of investment management firms performance
  measurement processes and procedures.
  Verification tests
• Not currently required but strongly encouraged
  (Section III)

1. Whether the firm has complied with all the
   composite construction requirements of the GIPS
   Standards on a firm-wide basis
2. Whether the firms processes and procedures are
   designed to calculate and present performance
   results in compliance with the GIPS Standards.

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GIPS Presentation

• Background
• History
• Contents
• Organization
• Initiatives
• Future Plan
• Q A

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4. GIPS Organization

1. Overview
2. GIPS Executive Committee
3. GIPS Country Sponsors
4. GIPS Council
5. RIPS
6. Subcommittees
7. Working Group
8. GIPS Secretariat

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4-A) Overview
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4-B) GIPS Executive Committee

• Supreme decision-making body for GIPS matters
• Comprising 9 members w/voting rights
• Can create/amend GIPS Provision/Guidance
  Statements without CFA Institute Board approval
• Annual reporting to CFA Institute Board Required

Elected by Country Sponsors Elected by CFA Institute Board
GIPS Council Chair (Hans-Joerg von Euw) Investor/Consultant Subc. Chair (Carol Kennedy)
Americas RIPS Chair (Todd Juillerat) Investment Manager Subc. Chair (Sunette Mulder)
Asia-Pac RIPS Chair (Louis Boulanger) Verification/Practitioner Subc. Chair (Yoh Kuwabara)
EMEA RIPS Chair (Stefan Illmer) Interpretations Subc. Chair (Karyn Vincent)
EC Director (CFA Centre Director of IPS)
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4-C) GIPS Country Sponsors

• Should sign Agreement with CFA Institute and EC
• Should send representatives to RIPS and Council
• Roles and responsibilities include

• Promoting GIPS within their countries
• Being knowledgeable about and kept abreast of
  their domestic market and industry
• Nominating people for Subcommittees
• Submitting comments on exposure draft

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4-D) GIPS Council

• Established under GIPS EC
• Comprising all GIPS Country Sponsors
• Has subdivisions among 3 regions (RIPS Americas,
  Asia-Pac, EMEA)
• Council Chair has 1 voting right at the EC
• Along with 3 RIPS Chairs, Country Sponsor
  representatives occupy 4 seats at the 9 member
  GIPS EC

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4-E) RIPS

• Regional Investment Performance Subcommittee
• Established under GIPS Council, but Chair retains
  1 voting right at GIPS EC
• 1 Each for Americas, Asia-Pac and EMEA
• May have subcommittees and/or working groups
  underneath

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4-F) Subcommittees

• Major stakeholders alongside Country Sponsors
• Interpretations Subcommittee
• Other technical subcommittees on specific
  topic/subject (e.g., Real Estate, Private Equity,
  Hedge Fund)-currently not existent

• Investor/Consultants Subcommittee
• Investment Manager Subcommittee
• Verification/Practitioner Subcommittee
• Promotion and Awareness Subcommittee

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4-G) Working Groups

• Intellectual Property Working Group
• Process Working Group
• Communication Task Force

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4-H) GIPS Secretariat

• Staff at CFA Centre
• Support activities of EC(1), Council(1), RIPS(3),
  Subcommittees(5) and Working Groups(3)
• Guardian of GIPS documents
• Website Administrator

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GIPS Presentation

1. Background
2. History
3. Contents
4. Organization
5. Initiatives
6. Future Plan
7. Q A

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5. Initiatives

• Promote GIPS around the world
• Upgrade GIPS to incorporate global best practices

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GIPS Presentation

1. Background
2. History
3. Contents
4. Organization
5. Initiatives
6. Future Plan
7. Q A

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6. Future Plan

• GIPS2010 next overall revision and upgrade of
  GIPS
• Subject of discussion may include

Mandating verification New Provisions for Hedge
Fund New Provisions on after-tax performance
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GIPS Presentation

1. Background
2. History
3. Contents
4. Organization
5. Initiatives
6. Future Plan
7. Q A