Reading 05: The GIPS Standards (9 major sections ( Fundamentals of…
Reading 05: The GIPS Standards
Key features of GIPS Standard & Fundamentals of Compliance
GIPS standards are ethical standards for investment performance presentation, to ensure fair representation and full disclosure.
Meeting the objectives of fair representation and full disclosure may require more than simply adhering to GIPS minimum requirements.
Firms must include all actual, discretionary, fee-paying portfolios in at least one composite to prevent cherry-picking only best performance.
Firms must adhere to certain calculation methodologies and to make specific disclosures along with the rm’s performance.
Firms must comply with all requirements of the GIPS standards.
Scope of GIPS Standards
Historical performance records
A firm is required to initially present, at a minimum, 5 years of annual investment performance that is compliant with the GIPS standards.
Then, Firm must present an additional year of performance each year, building up to a minimum of 10 years of GIPS-compliant performance.
Firms may link non-GIPS-compliant performance to their GIPS-compliant one provided that only GIPS-compliant performance is presented for periods after 2000/01/01 and the firm discloses the periods of non-compliance.
GIPS Implementation and response in case of conflict with regional law
Having a local sponsoring organization for investment performance standards is essential for effective implementation and support of the GIPS standards.
The sponsor ensures that the country’s interests are taken into account as the GIPS standards are developed.
Countries without an investment performance standard are encouraged to promote the GIPS standards as the local standard and translate into the local language when necessary.
GIPS Executive Committee will continue to promote and develop the GIPS standards so that they maintain their relevance within the changing investment management industry.
The self-regulatory nature of the GIPS standards necessitates a strong commitment to ethical integrity.
When GIPS conflicts with regional law
Firms are required to comply with the laws and regulations and make full disclosure of the conflict in the compliant presentation
9 major sections
Fundamentals of Compliance.
Firms must comply with all the requirements of the GIPS standards, including any updates, Guidance Statements, interpretations, Q&As, and clarifications
Firms must comply with all applicable laws and regulations regarding the calculation and presentation of performance.
Firms must not present false or misleading performance or performance-related information.
GIPS standards must be applied on a firm-wide basis.
Firms must document their policies and procedures used in establishing and maintaining compliance with the GIPS standards
Partial compliance with the GIPS standards is not acceptable
Statements referring to the calculation methodology as being “in accordance,” “in compliance,” or “consistent” with the GIPS, or similar statements,
Statements referring to the performance of a single, existing client portfolio as being “calculated in accordance with the GIPS”
Firms must make every reasonable effort to provide compliant presentation to all prospective clients.
Firms must provide a complete list of composite descriptions to any prospective client that makes such a request, including terminated composite within 5 years.
Firms must provide a compliant presentation for any composite listed on the firm’s list of composite descriptions to any prospective client that makes such a request.
Firms must be defined as an investment firm, subsidiary, or division held out to clients or prospective clients as a distinct business entity.
For periods beginning on or after 1 January 2011, total firm assets must be the aggregate fair value of all discretionary and non-discretionary assets managed by the firm.
Total firm assets must include assets assigned to a sub-advisor .
Changes in a firm’s organization must not lead to alteration of historical composite performance.
When the firm jointly markets with other firms, the firm claiming com-pliance with the GIPS standards must be sure that it is clearly defined and separate relative to other firms being marketed, and that it is clear which firm is claiming compliance.
Firms should comply with the recommendations of the GIPS standards, including recommendations in any updates, Guidance Statements, interpretations, Question, Q&As, and clarifications.
Firms should be verified.
Firms should adopt the broadest, most meaningful definition of the firm.
Firms should provide to each existing client, on an annual basis, a compliant presentation of the composite in which the client’s portfolio is included.
Presentation and Reporting.
Wrap Fee/Separately Managed Account (SMA) Portfolios.