GIPS Standards Flashcards
2020 edition has three chapters
- Firms
- Asset Owners
- Asset owners : pension funds, endowments, foundations, sovereign wealth funds
- manage investments, directly and/or through the use of external managers, on behalf of participants, beneficiaries, or the organization itself - Verifiers
Asset owners
> compete for business by marketing to prospective clients : GIPS Standards for
Firms
DO NOT compete for business : GIPS
Standards for Asset Owners
Mission
> promote ethics and integrity
instill trust
universal demand for compliance by asset owners
adoption by asset managers
support from regulators
=> benefit of the global investment community
Objectives
- promote investor interests and instill investor confidence
- Ensure accurate and consistent data
- Obtain worldwide acceptance of a single standard for the calculation and
presentation of performance - To encourage fair, global competition among investment firms
- Promote industry “self-regulation” on a global basis
Why Were The GIPS Standards Created?
- difficulty making meaningful comparisons on performance data
- Misleading practices hinder comparability
- Representative accounts
- Only reporting top-performing accounts
- Survivorship bias
- Presenting an ‘average’ performance
history (this ok) - Excluding poor-performing portfolios (this not ok)
- Presenting an ‘average’ performance
- Varying time periods
- Selecting time periods to favor results
- Practitioner-driven set of ethical principles:
- standardized, industry-wide approach for calculating and presenting historical
investment results - Help avoid misrepresentation of performance by investment firms
Who Can Claim Compliance?
- investment management firm that manages assets
- Compliance is voluntary and not typically required by legal or regulatory
authorities - Asset owners (as discussed previously)
- Consultants
- Cannot make a claim of compliance with GIPS Standards for Firms unless they manage assets but can claim to endorse the Standards
- Software vendors + their softwares
- Cannot be compliant
- Firm-wide process
- Cannot be achieved on a single product or composite
- Two options
- Comply or do not comply
Who benefits from compliance?
Benefits three main groups:
* Investment management firms
- Allows for global competition for compliant firms
* Prospective clients
- performance reports are accurate and allows them to more readily compare with other investment firms
* Asset owners and their oversight bodies
- Particularly where asset owners require their external managers to comply with GIPS
Composites
- Required
- Composite
- Aggregation of discretionary portfolios into a single group that represents a particular
investment objective or strategy - Must include all actual, fee-paying discretionary portfolios managed in accordance with the same investment objective or strategy
- A claim of compliance requires that all fee-paying discretionary accounts managed by
the firm be included in at least one composite - Firms cannot choose portfolios to include or exclude
- Establish criteria on an ex-ante basis (before the fact, not after)
Verification
- Firms are responsible for their claim of compliance and for maintenance of the
claim - Firms self-regulate
- Can voluntarily hire an independent third-party to verify claim
- Primary purpose
- Provide assurance that a firm has adhered to the Standards on a firm-wide basis
- Verification
- Entire firm; not on specific composites
- Has the firm complied with all the composite construction requirements of GIPS on a firm-wide basis?
- Are the firm’s processes and procedures designed to calculate and present performance results in compliance with the GIPS standards?
- Only performed by independent third-parties
Where local performance presentation regulations conflict with GIPS standards, GIPS-compliant firms should most likely comply with:
local regulations and disclose conflicts
The GIPS standards were created to prevent the:
selection of a top-performing portfolio to represent the firm’s strategy.
