The Global Investment Performance Standards (GIPS) are a set of standardized guidelines for calculating and presenting investment performance created by the CFA Institute in 1999. They aim to provide credibility and transparency for investment performance reporting. The latest 2020 edition includes some key updates such as new private equity provisions and guidance on applying GIPS to ultra high-net-worth accounts. Adoption of GIPS is voluntary but they have become an industry benchmark, especially among institutional investors. Key aspects covered in the 352-page GIPS standards pdf include calculation methodologies, disclosures, presentation and reporting. Using GIPS helps build trust between asset managers and investors by ensuring firms are fairly representing their capabilities. The standards also facilitate comparison between investment firms. Knowing the key provisions in the 2020 GIPS standards pdf is important for investment professionals focused on performance reporting and presentation.
Overview and objectives of GIPS 2020 standards
The Global Investment Performance Standards were first published in 1999 and are periodically updated, with the latest version being the 2020 edition. The objectives of the standards are to provide full disclosure and fair representation of investment performance results, enable meaningful comparisons between investment firms, safeguard the integrity of performance data, and guide firms in preparing performance presentations. Key guiding principles include fair representation, full disclosure, standardized methodologies, comparability and transparency. The standards outline recommendations for various aspects of investment performance such as calculation and presentation. They aim to establish standardized best practices that firms can choose to follow on a voluntary basis.
Major changes and updates in 2020 edition
Some notable updates in the 2020 edition of GIPS standards include:
– New private equity provisions covering aspects like valuation of portfolio assets, calculation of performance metrics, and composite construction.
– Guidance on applying GIPS to ultra high-net-worth accounts to provide credibility.
– Rules for performance examinations, advertisement evaluations, and use of sales and marketing material.
– Clarification that firms must make a reasonable effort to provide compliant presentations to all existing clients.
– Guidance on treatment of significant cash flows for periods greater than one year.
– Enhanced requirements around documenting policies and procedures.
Key provisions on composite construction
The GIPS standards contain important guidelines on constructing composites, which are aggregates of individual portfolios representing a particular investment mandate or strategy:
– Composites must include all actual discretionary portfolios managed according to a particular strategy or objective, subject to limited exceptions.
– Composites must include new portfolios on a timely and consistent basis after they come under management.
– Terminated portfolios must remain in the composite through the last full measurement period that they were under management.
– Composites must contain at least 5 or more portfolios to prevent statistical bias, unless firm has fewer than 5 portfolios.
– Composite must have consistent valuation policies and procedures for underlying portfolios.
– Firms must disclose composite description, creation date, minimum asset level, significant cash flows policy, valuation policy, and other relevant details.
Overview of calculation and disclosure provisions
The GIPS standards contain detailed calculation and disclosure provisions including:
– Standard methodologies for calculating composite returns through time-weighted rates of return. Rules on input data, calculation frequency, treatment of cash flows, expenses, etc.
– Required disclosures including 10 years of annual performance, firms assets, composite assets, 3 years of ex-post standard deviation, benchmark returns, etc. Disclosure of any unusual significant events.
– Guidelines for presenting compliant presentations with appropriate disclosures and disclaimers.
– Required compliant presentation for all existing clients, with recommendations for prospective clients.
– Maintenance of policies and procedures for ensuring firm-wide compliance with all applicable requirements.
The 2020 Global Investment Performance Standards pdf contains important provisions and guidelines for investment firms related to performance calculation, reporting, presentation, and disclosure. Adoption can provide credibility and transparency.