Why GIPS are a must for asset managers

GIPS^® are globally accepted standards considered industry best practice for investment performance reporting and presentation.

In brief

• What does GIPS stand for?
• Why are GIPS a must for asset managers?
• What are EY’s GIPS investment performance services?

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:

2020 GIPS for Verifiers

Verification is intended to provide a firm and its prospective and current clients and pooled fund investors with additional credibility in the firm’s claim of compliance with GIPS.

Verification supports the overall guiding principles of full disclosure and fair representation of a firm’s investment performance.

Verification may increase the knowledge of the firm’s performance measurement team and improve the consistency and quality of the firm’s GIPS-related performance information.

Verification may result in improved internal policies and procedures as well as marketing advantages for the firm.

GIPS recommend that firms be verified.

EY’s investment performance services

As verifiers, we perform the following services in Switzerland to assist asset managers:

• Verification services: A verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with GIPS and have been implemented on a firm-wide basis. After completion of the GIPS verification, we will issue a GIPS verification report and a recommendation letter to management.

We can also assist asset managers with the following investment performance related services:

• Pre-verification sessions, including completing a gap analysis and development of action points to bring you in line with the requirements
• Clarifying your options on composite construction, composite management and GIPS reports
• Testing the performance calculation methodology of portfolios, composites, benchmarks and risk measures

The Asset Management Association Switzerland is the official country sponsor of the GIPS standards in Switzerland. The association is also responsible for the administration of GIPS in Switzerland. Together with its GIPS Expert Group which consists of representatives of investment managers, banks and audit firms, the association promotes GIPS in Switzerland, organizes events and workshops on GIPS, coordinates the position of Swiss users of GIPS on developments and interpretations of the Standards and acts as a link to the global GIPS standard-setting bodies and the CFA Institute.

GIPS^® is a registered trademark owned by CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.