The Saudi Arabian Monetary Authority (SAMA) announced earlier this month they now comply with the Global Investment Performance Standards (GIPS®). As one of the largest public asset owners in the world, SAMA joins an increasing number of entities embracing industry best practices when calculating and presenting investment performance. With each release of a new version of the GIPS standards, ACA Performance Services has noticed an increase in the rate of adoption among all types of firms, as well as increased interest in third-party verification. Historically, this interest and adoption has come primarily from more traditional asset managers that manage separate accounts and are invested in public securities.
However, the 2020 GIPS Standards, as proposed, have increased the scope to be more applicable to managers outside of the historical universe of firms that claimed compliance. In particular, asset owners may begin embracing the idea of guidance for calculating and presenting investment performance that is specific to their beneficiaries. A joint eVestment-ACA Performance Services survey published last year found that 94% of consultants and investors believe that more asset owners will claim compliance when the 2020 GIPS Standards are released. SAMA, CalPERS, and others are leading the charge towards increased transparency and integrity when reporting to stakeholders. We have not noticed a trend yet of asset owners claiming compliance, but should that pick up we would in turn expect many of those newly compliant funds to begin requiring the same standards of reporting upon their third-party managers as they themselves are providing.
The 2020 GIPS Standards have also been refined to be more applicable to alternative managers through the expanded allowance of money-weighted returns, updated valuation approaches, and more timely reporting. In the aforementioned survey, 60% of alternative asset managers expect to see the industry start voluntarily complying with the GIPS standards, and 75% of consultants expect alternative managers will be required to comply. In addition, a recent joint webcast hosted by ACA and PEF Services LLC revealed similar sentiment with regards to private equity performance reporting. Some 300 of the alternative and private equity managers attending the webcast were asked about the current level of awareness of GIPS compliance within their firm. Approximately 52% responded that they had heard about the GIPS standards from other members of their firm, as well as from investors.
Beyond private equity, ACA has also seen interest from several asset management firms that manage public and private credit. This is likely due to an expansion in allocations to private credit managers as institutions search for higher fixed income returns. Anecdotally, some firms are being screened out of RFPs because they were not claiming GIPS compliance.
Increased interest in the GIPS standards does not appear to be limited to non-traditional investment managers. The 2020 GIPS standards are also creating a buzz in the retail space, as more platforms, distribution channels, and even broker-dealers are requiring financial advisors to claim GIPS compliance. Proposed provisions allowing carve outs, the elimination of separate wrap guidance, and new pooled fund guidance facilitate this interest by helping firms focus on reporting the most meaningful performance to prospective clients. In the end, only time will tell if the 2020 GIPS Standards expand the number of entities claiming GIPS compliance worldwide, but the preliminary results are promising for all industry participants.
About the Author
Richard J. Kemmling, CPA, CIPM, CGMA is a Partner at ACA Performance Services, a division of ACA Compliance Group. His primary responsibilities include serving as a partner on GIPS compliance verification engagements, as well as performance certifications and focused performance reviews. He also co-leads the division’s executive committee. Richard has worked with firms of all sizes and asset classes around the world. He is a frequent speaker globally on GIPS compliance and has been quoted and interviewed by several industry media outlets. Prior to joining ACA, Richard served as Partner and President of a large global verification firm. He earned his Bachelor of Arts degree in Accounting from the University of Washington and an MBA from the University of Chicago’s Booth School of Business.