GIPS Flashcards
Who Can Claim Compliance?
Only firms that manage actual assets can claim compliance with the GIPS standards
Who Benefits from Compliance?
Investment Firms
Compliance enhances credibility, allowing firms to compete globally and potentially strengthening internal controls over performance-related policies.
Who Benefits from Compliance?
Prospective Clients and Investors
They gain confidence in the integrity of performance presentations and can compare performance across different firms more easily.
Who Benefits from Compliance?
Asset Owners and Oversight Bodies
They can make better investment decisions and evaluate fund performance consistently, especially when external managers also comply with GIPS standards.
Key Concepts of the GIPS Standards:
Ethical Standards
The GIPS standards are ethical guidelines to ensure fair representation and full disclosure in performance reporting.
Key Concepts of the GIPS Standards:
Fair Representation and Full Disclosure:
Achieving these objectives often requires going beyond minimum requirements, adhering to best practices in performance calculation and presentation.
Key Concepts of the GIPS Standards:
Comprehensive Compliance
Firms must comply with all applicable GIPS requirements, including guidance statements, interpretations, and Q&As from the CFA Institute and GIPS governing bodies.
Key Concepts of the GIPS Standards:
Evolution and Adaptation
The GIPS standards will continue to evolve to address new aspects of performance measurement.
Key Concepts of the GIPS Standards:
Composite Creation and Maintenance
Firms must create and maintain composites for all strategies managing segregated accounts or marketed to such accounts, including all actual, fee-paying, discretionary segregated accounts in at least one composite defined by investment mandate, objective, or strategy. Pooled funds must also be included in relevant composites.
Key Concepts of the GIPS Standards:
Input Data Integrity
Accurate performance presentations depend on the quality of input data, making the underlying valuations of portfolio holdings critical. Firms must adhere to certain calculation methodologies to ensure comparability across firms.
What is a Composite?
A composite is an aggregation of one or more portfolios that are managed according to a similar investment mandate, objective, or strategy. The creation and maintenance of composites are crucial for ensuring the accuracy and integrity of performance reporting. This practice helps to prevent firms from selectively presenting only their best-performing portfolios, a practice known as “cherry-picking.”
Purpose of Composites
The requirement to use composites is designed to ensure fair representation and full disclosure of a firm’s investment performance.
By including all actual, fee-paying, discretionary portfolios managed in accordance with a specific investment mandate, objective, or strategy, the GIPS standards provide a transparent and comprehensive view of a firm’s performance.
Requirements for Composites:
Inclusion of Portfolios
A composite must include all fee-paying, discretionary portfolios that are managed according to the same investment mandate, objective, or strategy. This includes segregated accounts as well as pooled funds that meet the composite definition.
Requirements for Composites:
Ex Ante Criteria
The determination of which portfolios to include in a composite should be based on pre-established criteria, determined before performance is known (ex ante), to prevent any subjective selection based on performance outcomes.
Requirements for Composites:
Inclusion of Portfolios
The composite must include all fee-paying portfolios managed according to the firm’s Global Equity strategy. This means any portfolio, past or present, that falls under the Global Equity mandate must be included in the composite.
