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GIPS Standards, CFAAsset Owners GIPS
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GUIDANCE STATEMENT ON THE APPLICABILITY
OF THE GIPS STANDARDS TO
ASSET OWNERS
1
WHAT ARE GLOBAL INVESTMENT
PERFORMANCE STANDARDS?
Voluntary standards governing the calculation and
presentation of investment performance based on the
ethical principles of fair representation and full disclosure.
The goal of the GIPS Executive Committee is to have all
firms adopt the GIPS standards as the standard for
investment firms to present historical investment
performance information.
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OBJECTIVES
Ensure accurate and consistent data
Obtain worldwide acceptance of standards for
calculating and presenting performance
Promote fair, global competition among
investment firms
Promote industry self-regulation on a global basis
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MISSION
Promote ethics and integrity and instill trust through
the use of the Global Investment Performance
Standards by achieving universal demand for
compliance by asset owners, adoption by asset
managers, and support from regulators for the
ultimate benefit of the global investment
community.
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OBJECTIVES OF THE GIPS STANDARDS
Consistency
Transparency
Disclosure
Comparability
Assessment of
the asset
manager’s
performance
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BENEFITS OF AN INDUSTRY CREATED
PERFORMANCE STANDARD
• Prospective Investors:
- Transparency and confidence
- Ethical commitment - ‘best practice’
professionalism
- Viewed as the norm
• Firms:
- Global passport
- Self regulation
- Enhance internal controls
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BENEFITS OF AN INDUSTRY CREATED
PERFORMANCE STANDARD
• Asset Owners:
- Demonstrates commitment to follow global
industry standard and best practice
- Performance Calculation
- Performance Presentation
- Valuation
- Establishes robust performance policies and
procedures
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BENEFITS OF AN INDUSTRY CREATED
PERFORMANCE STANDARD
• Asset Owners (cont’d):
- Commitment to consistent, transparent, and
comparable methods of calculating and
presenting performance
- Adopt same principles required by external
investment managers
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EVALUATING PERFORMANCE
Is this a good asset manager ?
40
60
80
100
120
140
160
Asset Manager Benchmark
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PERFORMANCE EVALUATION
Who is the better
asset manager ?
Manager A Manager B
5 % 5 %
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THE NEED FOR STANDARDS
Selective time
period presentation
“Cherry picking”
of accounts
Use of model/
back-tested performance
Use of inappropriate
benchmark/index Inadequate disclosures
Why do we need
performance presentation
standards?
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HISTORY OF THE STANDARDS
AIMR-PPS Standards
Standards drafted in 1987 – Adopted 1993
Voluntary, ethical principles
Fair representation and full disclosure
Ensure accurate & consistent data
Promote fair competition
Industry self-regulation
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HISTORY OF THE STANDARDS
GIPS Standards
Initiative began in 1995 – Adopted 1999
US, UK, Switzerland & Japan had well established
performance standards
A global solution was discussed
Promote fair representation & full disclosure
“The Global Passport”
Country Versions of GIPS still existed
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HISTORY OF THE STANDARDS
“Gold GIPS”
Moved to one global standard in 2005
Global solution
Promote fair representation & full disclosure
“The Global Passport”
Full compromise was reached
Country Versions of the GIPS standards were abolished
Committed to reviewing GIPS once every 5 years
HISTORY OF THE GIPS STANDARDS
AND ASSET OWNERS
• GIPS Standards were traditionally designed for
investment managers.
• Asset Owners were also allowed to claim compliance with
GIPS.
- Asset Owners were confused about how to apply
requirements and recommendations that were not
originally designed for them.
• New Guidance Statement provides interpretation on the
requirements and recommendations related to asset
owners.
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HISTORY OF THE GIPS STANDARDS
AND ASSET OWNERS
Entities with discretion over the assets under
management, either by managing assets directly or
having the discretion to hire and fire underlying
investment managers can claim compliance.
Who is considered to be an “asset owner” under the new
guidance statement?
- Entities that manage investments, directly and/or
through the use of external managers, on behalf of
participants, beneficiaries, or the organization itself,
including (but not limited to):
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HISTORY OF THE GIPS STANDARDS
AND ASSET OWNERS
(cont’d)…
- Public and private pension funds
- Endowments
- Foundations
- Family offices
- Provident funds
- Insurers and reinsurers
- Sovereign wealth funds
- Fiduciaries
The term “asset owner” applies to organizations and NOT to individuals.
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HISTORY OF THE GIPS STANDARDS
AND ASSET OWNERS
Why is guidance needed specifically for asset owners?
- Asset owners are typically accountable to an oversight board (e.g., board of trustees) responsible for establishing investment policies and monitoring performance.
- Most asset owners do not have prospective clients.
- Most asset owners do not compete for business.
- Asset owners manage assets to support the mission of an organization.
- Asset owners are often only accountable to their oversight boards.
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HISTORY OF THE GIPS STANDARDS
AND ASSET OWNERS
Why is guidance needed specifically for asset owners?
- Different model from investment managers.
- Investment managers market performance to attract and retain clients.
- Many GIPS provisions relate to marketing to prospective clients and would not apply or apply differently to asset owners.
- Many GIPS provisions are not clearly interpreted for the use of asset owners.
This Guidance Statement addresses these differences and clarifies the appropriate requirements and recommendations.
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HISTORY OF THE GIPS STANDARDS
AND ASSET OWNERS
Asset owners who do not compete for business or
market to prospective clients must follow this Guidance
Statement.
Some asset owners manage assets of other related
asset owners to gain efficiencies and cost savings and
do not compete for business or market to prospective
clients.
- These asset owners must follow this Guidance
Statement.
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HISTORY OF THE GIPS STANDARDS
AND ASSET OWNERS
Asset owners with the authority to compete for business
and market to prospective clients must follow the existing
GIPS Guidance and requirements and would not follow
this Guidance Statement.
- If an asset owner can attract and retain prospective
clients, it adopts the investment manager model and
this guidance is no longer appropriate.
- They may use this Guidance Statement as a helpful
reference for understanding terms within GIPS.
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WHAT IS INCLUDED IN THE GIPS STANDARDS?
The following items are considered part of the GIPS
Standards authoritative guidance and interpretation:
The GIPS Standards
All GIPS Guidance Statements
All Q&As in the GIPS Q&A Database
GIPS Handbook
Any Updates or Clarifications Published by the GIPS EC
and CFA Institute
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PROVISIONS OF GIPS STANDARDS
0. Fundamentals of Compliance
1. Input Data
2. Calculation Methodology
3. Composite Construction
4. Disclosure
5. Presentation and Reporting
6. Real Estate
7. Private Equity
8. Wrap Fee/Separately Managed Accounts (SMA) Portfolios
The GIPS standards must be applied on a firm-wide basis.
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CURRENT GUIDANCE STATEMENTS
Applicability of the GIPS Standards
to Asset Owners
Alternative Investment
Strategies and Structures
Calculation Methodology
Composite Definition
Definition of Firm
Error Correction
Fees Provisions
Impact of Euro Conversion
Performance Examinations
Performance Record Portability
Private Equity
Real Estate
Record Keeping
Treatment of Carve-Outs
Treatment of Significant Cash Flows
Use of Supplemental Information
Verification
Verifier Independence
Wrap Fee/ Separately Managed
Accounts
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RESOURCES
The GIPS standards website:
- Complete List of Guidance Statements
- Q&A Database
- Free Webcasts
- How to Become Compliant
http://www.gipsstandards.org/compliance/Pages/index.aspx
The GIPS standards Handbook
Helpdesk: [email protected]
E-mail Alert List: [email protected]
Twitter: @gipsstandards
Certificate in Investment Performance Measurement (CIPM):
cfainstitute.org/cipm
www.gipsstandards.org
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