The popularity and worldwide adoption of the Global Investment Performance Standards (GIPS®) by investment management firms is largely due to demand by asset owners. In order to trust investment performance when hiring an outsourced manager, asset owners increasingly require investment managers to comply with the GIPS standards. Through these interactions, asset owners have come to understand the importance of one global, ethical set of standards for the calculation and presentation of investment performance and want to apply the same principles to their own performance reporting. As a result of the increased transparency and due diligence on the part of asset owners, there is growing interest in attaining GIPS compliance among the asset owner community. In the past, GIPS compliance for asset owners was difficult because there was no interpretive guidance for how the GIPS standards should be applied to their structure. To address this, the GIPS Executive Committee has released guidance specifically for asset owners to claim GIPS compliance. To make it even easier on asset owners, only one (1) year of compliant data is initially required instead of five (5) years (while still building towards a full ten (10) year compliant history). Furthermore, on June 28, 2019, the 2020 edition of the GIPS standards was released with the goal of making GIPS compliance more relevant and easier to achieve for many different types of firms and organizations. The 2020 GIPS standards have eliminated asset class guidance in favor of product and vehicle-specific guidance, resulting in a more flexible structure that makes investment performance reporting more meaningful, including for asset owners.
Because of these changes, we expect to see an increased appetite for the GIPS standards amongst asset owners such as public pension plans, sovereign wealth funds, and other institutional pools of money. This opinion is also held by institutional consultants, as reported in the 2018 eVestment and ACA survey, of which 94% believe more pension funds, foundations, endowments, and other asset owners will claim compliance with the 2020 GIPS standards. Compliance demonstrates a commitment to consistency and transparency in performance reporting while forcing asset owners to abide by the same standards that are required of external managers. As we continue to see other types of firms and organizations adopt the GIPS standards, including alternative managers, it will only make sense for asset owners to do the same.
Practical Guidance: The 2020 GIPS Standards for Asset Owners identifies key areas of focus for asset owners when seeking to become GIPS compliant, to identify requirements that are different for asset owners as compared to investment managers, to provide a guide for an asset owner to become GIPS compliant, and to provide answers to commonly asked questions.
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