Underlying the GIPS Standards are simple principles of fair presentation and full disclosure that facilitate competition by allowing investors to make an “apples to apples” comparison of investment management firms and their investment strategy. The GIPS Standards also aim for added credibility of performance presentations of investment firms applying this best practice standard.
GIPS® is a registered trademark of CFA Institute.
In order to claim GIPS compliance, your organization must follow a series of clear requirements to achieve best practice in investment performance presentations. GIPS Standards 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.
Evolution of GIPS and the 2020 GIPS Standards
In the 90s, globalization – coupled with new communication technologies – had blown the lid on the number of international investment management services available to investors. Cases of „well-known“ marketing abuses of ‘cherry picking’ the best performing accounts managed to a particular strategy and a ‘survivor bias’, instances of presenting only the performance of accounts that exist today and ignoring the track records of closed funds, were also evident in the industry.
Several editions of the GIPS Standards
There was a clear need to establish international standards for reporting investment performance to clients which led to the establishment of the GIPS Standards by the CFA Institute in 2000.
- The 2010 GIPS® Standards – The GIPS Standards, 2010 edition are effective as of 1 January 2011.
- The 2020 GIPS® Standards – The release of the 2020 GIPS Standards, effective as of 1 January 2020, represents an important milestone — in both the evolution of the GIPS Standards and in ensuring their relevance for all asset classes and types of investment managers.
New structure of the 2020 GIPS Standards
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 Standards 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:
The 2020 GIPS Standards for Verifiers
- Verification is intended to provide a firm and its prospective and current clients and pooled fund investors additional credibility in the firm’s claim of compliance with the GIPS Standards.
- 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 Standards–related performance information.
- Verification may result in improved internal policies and procedures as well as marketing advantages for the firm.
- The GIPS Standards recommend that firms be verified.
EY investment performance services
As verifiers, we perform the following services in Switzerland to assist investment 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 the GIPS Standards 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.
We can also assist you 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
For a comprehensive evaluation of your operations, and how they can be brought in line with international leading practice, please contact Susanne Klemm (Leader Investment Performance Services, EY Switzerland).
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.