Global Investment Performance Standards

1
Global Investment Performance Standards
Reasons for creation
Requirements for Verification
Parties affected
Key Characteristics
Composites
Implementing the GIPS
Eight Major Sections
Fundamentals of Compliance
Scope
2
Global Investment Performance Standards
Reasons for Creating the GIPS

• Misleading performance measurement practices
  hindered comparability
• Standardised calculation and reporting practices
  to aid comparability
• Avoid misrepresentation of performance of
  investment firms and to provide relevant
  information so that prospective clients are able
  to evaluate past performance

Parties Affected by the GIPS
3
Characteristics of the GIPS

• Firm should reflect the distinct business
  entity that is held out to clients or potential
  clients
• Ethical standards to ensure fair representation
  and full disclosure
• Include all actual fee-paying, discretionary
  portfolios in composites
• Show GIPS-compliant history for a minimum of five
  years (or since inception if less than five
  years)
• After presenting compliant results, the firm must
  add annual performance each year going forward up
  to a minimum of ten years
• Stipulates calculation and presentation methods,
  disclosures and performance record
• Accuracy of input data is critical to the
  accuracy of the performance presentation

4
Characteristics of the GIPS

• GIPS consist of required and recommended
  provisions. Firms are encouraged to adopt the
  recommended provisions
• Firms are encouraged to present all pertinent
  additional and supplemental information
• Only full compliance can be claimed
• If local laws are in conflict with GIPS, firms
  should comply with the local law, but disclose
  the conflict
• Certain recommendations may become
  requirements in the future
• Supplemental private equity and real estate
  provisions contained in the GIPS must be applied
  to these asset classes

5
Eight Major Sections of the GIPS

• Fundamentals of compliance
• Include definition of firm, documentation of
  policies and procedures, maintaining compliance
  with updates of GIPS, and use of the claim of
  compliance and references to verification
• Input data
• Input data should be consistent for full, fair,
  and comparable performance presentations
• Calculation methodology
• GIPS require certain calculation methodologies
  for both portfolios and composites
• Composite construction
• Creation of meaningful, asset-weighted composites
  is important for fair presentation

6
Eight Major Sections of the GIPS

• Disclosures
• Must disclose certain information about firms
  performance presentation and policies adopted
• Presentation and reporting
• Based on GIPS requirements and should include any
  other additional pertinent information
• Real estate
• Provisions apply to all real estate investments
  regardless of the level of control firm has over
  the management of the investment
• Private equity
• Provisions apply to all private equity
  investments unless it is an open-end or evergreen
  funds (must follow main GIPS requirements)

7
Fundamentals of Compliance

• Definition of firm requirements
• GIPS to be applied on a firm-wide basis
• Firm may be defined as an investment
  firm/subsidiary/division held out as a distinct
  business unit
• Total firm assets include total market value of
  all discretionary and nondiscretionary assets
  under management, including both fee- and non
  fee-paying accounts
• Include asset performance of sub-advisors if firm
  has discretion over selection of sub-advisor
• Historical composite results cannot be changed
  even if a firm changes its organization
• Definition of firm - recommendations
• Encourage to use the broadest definition of the
  firm, including all geographical locations
  marketed under the same brand name

8
Fundamentals of Compliance

• Document policies and procedures
• Documentation, in writing, of policies and
  procedures used to comply with GIPS is required
• Claim of compliance requirements
• No partial compliance is allowed when claiming
  compliance with GIPS
• Compliance Statement - FIRM has prepared and
  presented this report in compliance with the
  Global Investment Performance Standards (GIPS)
• Can not use statements that mention in
  accordance or compliance with GIPS when
  referring to performance of a single composite or
  client account (unless the firm is reporting
  directly to the client).

9
Fundamentals of Compliance

• Firm fundamental responsibilities - requirements
• Firms must provide compliant presentation to all
  potential clients. A potential client must have
  received a compliant presentation within the past
  12 months
• Must provide a composite list and description if
  requested by a potential client. List
  discontinued composites for at least 5 years
• Provide a composite description for any composite
  on the firms list if requested by
  client/potential client
• When doing joint-marketing with other firms, the
  firm with GIPS compliant performance must be
  clearly defined and separated from non-compliant
  results
• Firms are encouraged to comply with GIPS
  recommendations. Must comply with GIPS
  requirements, including updates, guidance
  statements, clarifications etc.

10
Fundamentals of Compliance

• Verification recommendations
• Firms are encouraged to obtain independent
  third-party verification that firms are in
  compliance with GIPS.
• Verification is for the entire firm and cannot be
  for a single composite

Purpose of Composite

• A composite is a grouping of individual
  portfolios with a similar investment objective or
  strategy.
• The composite return represents the asset
  weighted average return of all the portfolios in
  the composite.
• Composite creation is important for consistency
  and comparability of performance over time and
  among firms.