Views on improving the integrity of global capital markets
11 May 2012

From Hedge Fund Guidance to New Handbook, Major Developments for the GIPS Standards

Cindy Kent

A positive outcome from the recent economic turmoil is that investors are learning more about investment returns, risk, different investment strategies, and the methodologies employed by asset management firms to obtain their reported performance results. Understanding the composition and variability of performance returns is an integral part of investing. The Global Investment Performance Standards (GIPS®) offer benefits to investors by providing a universal set of guidelines so they can make better, more informed investment decisions — and directly compare performance results that have been produced in a consistent fashion and format between firms around the globe.

Investment firms that comply with the GIPS standards have a competitive edge: their commitment to ethics and the credibility of the firm. They recognize the value of complying with global, voluntary ethical standards that put the interests of their clients and potential clients first. The longstanding self-regulatory nature of the GIPS standards is based on a fundamental commitment to ethics and integrity — helping regulators exercise their responsibilities of ensuring full disclosure, fair representation, and transparency within financial markets.

Increasingly the GIPS standards are recognized as industry best practice for calculating, presenting, and reporting investment performance across different countries. CFA Institute, in partnership with investment organizations in 34 countries, continues to develop, evolve, and promote the GIPS standards. Here are some new developments.

Alternative Investments

The GIPS Executive Committee (the decision-making, governing body of the GIPS standards that consists of nine senior investment professionals from around the world) will release the much anticipated Guidance Statement on Alternative Investment Strategies and Structures in the coming weeks. This Guidance Statement provides insight on topics such as the treatment of side pockets, master-feeder structures, illiquidity, management fees, and hedging. All firms claiming compliance with the GIPS standards must adhere to this (and all) GIPS guidance statements whether they are traditional investment managers or alternative/hedge fund managers. Both the U.K. Hedge Fund Standards Board and the U.S. President’s Working Group on Financial Markets recommend that investors require hedge fund managers to comply with the GIPS standards.

Coming Soon: Updated GIPS Handbook

For a compilation of all the guidance, interpretations, and clarifications on the 2010 edition of the GIPS standards, please look for the upcoming release of the third edition of the GIPS Handbook, which replaces the 2006 edition. It will be available for free on the website; a hard copy also will be available for purchase.

And, on 5 May, the CFA Institute Board of Governors announced its appointment of Karyn Vincent, CFA, CIPM, to serve on the GIPS Executive Committee as chair of the GIPS Verification/Practitioner Subcommittee. Ms. Vincent has been a significant contributor and vital volunteer with a longstanding service record dedicated to the GIPS standards.  CFA Institute also recently awarded Ms. Vincent the prestigious Daniel J. Forrestal III Leadership Award for Professional Ethics and Standards of Investment Practice. This award recognizes a CFA Institute member who has championed the pursuit of excellence in professional ethics and standards of practice, and who has provided outstanding leadership in elevating the integrity and competence of the investment profession.

CFA Institute has a long history of commitment to establishing a globally adopted ethical standard for investment performance based on principles of fair representation and full disclosure. Investors can have more confidence in firms that comply with the GIPS standards, which leads to improved investor confidence in financial markets overall.

About the Author(s)
Cindy Kent

Cindy Kent was a director of investment performance standards at CFA Institute. She was responsible for developing, promulgating, and maintaining the GIPS standards. Kent's primary roles included managing the global adoption of and alignment of country-specific investment performance standards with the GIPS standards, developing educational and training products to promote the GIPS standards, and serving as staff liaison to the various committees addressing specific issues of the GIPS standards.

1 thought on “From Hedge Fund Guidance to New Handbook, Major Developments for the GIPS Standards”

  1. Jack Darrell says:

    A well written article and I look forward to the handbook

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