Why are GIPS a must for asset managers?
The Global Investment Performance Standards (GIPS®) aid investment managers with providing voluntary, self-regulated and globally recognized ethical standards, increasing the trust of investors and prospects, providing credibility to their track record and supporting their quest to secure more allocations from investors. For vehicles that are not subject to audit, GIPS will fill the void by providing guiding principles to support the fair presentation of investment performance and risk metrics, while increasing the quality and consistency of data. With the sweeping changes in the investment management industry, compliance with GIPS provides a competitive advantage for managers seeking growth.
To claim GIPS compliance, your organization must follow a series of clear requirements to achieve best practice in investment performance presentations. GIPS require the presentation of segregated accounts and their performance as composites. Composites show the weighted average of the performance of all existing portfolios managed to a particular investment strategy. The requirements of the standards primarily focus on areas of input data, performance calculation, composite construction, performance presentation, performance distribution as well as policies and procedures.
Several GIPS editions
There was a clear need to establish international standards for reporting investment performance to clients which led to the establishment of GIPS by the CFA Institute in 2000. Further editions followed. The release of the 2020 GIPS Standards, effective as of 1 January 2020, represents an important milestone — in both the evolution of GIPS and in ensuring their relevance for all asset classes and types of investment managers.
New structure of the 2020 GIPS
The original standards were mostly focused on an investment manager’s individual relationships with clients that had the ability to make investment decisions within the framework of an investment mandate. The new set of standards maintains the same principles for defining the firm and discretion, while amending the treatment of the investment manager’s portfolios regarding GIPS. Portfolios are allocated based on the type of relationship between the investment manager and client. Some simplifications in the treatment of pooled funds have been adopted. The GIPS are now more relevant and applicable to all asset managers and asset owners, regardless of structure, client type, asset class or investment strategy, while retaining their core objective: ensuring performance transparency to prospective clients and investors.
The 2020 GIPS Standards contain three separate documents:
Global Investment Performance Standards (GIPS) for Firms
Global Investment Performance Standards (GIPS) for Asset Owners
Global Investment Performance Standards (GIPS) for Verifiers
New types of GIPS reports
The 2020 GIPS Standards propose different types of GIPS reports for firms and asset owners: