CFA Institute released the first major revisions to the GIPS® standards on August 31, 2018. The proposed revisions represent the most significant change to the standards since the 2010 edition of the GIPS standards went into effect on January 1, 2011. The GIPS Standards 2020 Exposure Draft is now available for public comment until December 31, 2018.
This post addresses best practices for marketing when claiming compliance with the GIPS standards.
Compliance with the GIPS® standards is recognized as an industry best practice and has become a de facto requirement, especially in the institutional money management space, in order to stay competitive. A firm’s claim of GIPS compliance facilitates “apples-to-apples” comparisons between investment managers for prospective clients and fosters invaluable client trust.
A GIPS®-compliant presentation contains a number of required statistics. One such metric is the internal dispersion of individual portfolios within a composite. The GIPS standards do not prescribe a specific methodology (as long as the measure that is selected is applied consistently) and thus many firms struggle with this calculation. The following is a best effort attempt at explaining one option: asset-weighted standard deviation.
Portability refers to the ability of a GIPS®-compliant firm to present a track record that was achieved at another firm. When one firm hires a portfolio manager, there is usually a desire to market the portfolio manager’s track record while employed at the prior firm.
In 2002, the Sarbanes Oxley Act was enacted to augment the regulation of accounting and disclosures for public companies. This was in direct relation to aggressive accounting methods, the technology bubble, and other instances of corporate malfeasance. The ensuing financial crisis and market crash of 2007-2009 uncovered a lack of oversight exhibited by numerous Ponzi schemes, as well as negligent lending practices in the real estate mortgage market.
The GIPS® Technical Committee recently released three new GIPS Q&A’s that are all effective as of April 18, 2018. The Q&As provide clarification on Supplemental Information as well as guidance on Broadly Distributed Pooled Funds.
Consultant database reporting is an important business consideration for many investment management firms. The databases serve as a gateway for investment managers to reach institutional and retail assets alike. A recent trend in the industry is that of increased due diligence. The top databases are increasingly requiring firms to meet one of the following requirements:
More firms continue to be implicated as fallout from the F-Squared Investments, Inc. enforcement action continues. The latest development occurred March 22, when a federal judge ordered that F-Squared founder and former CEO Howard Present personally pay $13 million, including a $1.58 million civil money penalty, following his loss at trial this past October. This is a direct result of the Securities and Exchange Commission’s (SEC) increased focus on how advisers present third-party investment performance.
Firms of all sizes frequently ask about the relevance and importance of forming a GIPS® Committee within their organization. Startup firms debate whether a GIPS Committee provides any added value when limited personnel causes constraints on resources. Conversely, well established, global entities often see the added value in having a committee but must weigh the operational burdens involved.