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Reading 04. Global Investment Performance Standards (GIPS) (01. Why create…
Reading 04. Global Investment Performance Standards (GIPS)
01. Why create GIPS ?
To set a standardized, industry-wide way for firms to represent historical investment results fairly and fully.
Common misleading practices:
Representative Accounts
: only selecting top-performing portfolio
Survivorship Bias
: Excluding poorly-performing accounts.
Varying Time Periods
: Only choose well-performing period to present.
02. Who can claim compliance?
Any investment firms, who are actually manage assets, can claim, and if so, must claim to comply fully, not partially.
03. Who benefits?
Investment Management firms
: more competitive bids, better internal control.
Prospective Clients
: become more confident in the integrity
04. Composites
Composites is a combination of portfolios managed according to a similar investment mandate, objective, or strategy.
Reporting composite performance prevents cherry-picking of only well-performed portfolios.
05. Verification
Requirements
Verification is conducted by a third party, on a firm-wide basis.
Confirm that:
Firm complies with all requirements for composite constructions on a firm-wide basis.
Firm presents information on performance according to GIPS required methodology, data and format.