Views on improving the integrity of global capital markets
11 October 2013

Coming Soon: GIPS Standards Guidance for “Pooled Fund” Managers

People who are familiar with the Global Investment Performance Standards (GIPS) know that firms must adhere to all requirements of the standards in order to comply — partial compliance is not allowed. One of the key challenges that “pooled fund” managers face in meeting all requirements of the GIPS standards is that, unlike institutional asset managers, they typically lack one-on-one relationships and meeting opportunities with prospective and existing investors in their funds. In many cases, they sell their funds through third-party distributors, such as brokerage firms, banks, and other intermediary institutions, and don’t have direct contact with their actual investors. So how do they meet the GIPS standards’ requirement of “delivering a compliant presentation to all prospective clients”?

Because the GIPS standards do not currently offer definitive guidance, pooled fund managers have created their own strategies for handling this requirement. Some managers feel that pooled fund investors are not “prospective clients” — the fund board is the actual client because of how the fund is legally structured. Other managers believe that regulatory requirements prevent the GIPS standards from being applicable to pooled funds and are leaving pooled fund assets outside of their firm definition.

Then there are those managers who actually include pooled funds in their firm definition, inserting a copy of the GIPS-compliant presentation of the composite in which the pooled fund is included in the fund prospectus or other official regulatory documents. That’s because the GIPS standards require firms to include all actual, discretionary, fee-paying portfolios in at least one composite defined by investment mandate, objective, or strategy. This only leads to more questions: Which composite should include a pooled fund? Should it be a fund-specific composite (i.e., each pooled fund is a composite by itself), or should it be a strategy composite (i.e., the pooled fund is in a composite with other portfolios that are part of the same mandate)?

To help provide more clarity around these important issues, we recently created the Pooled Fund Working Group to develop, create, and propose guidance on applying the GIPS standards to both retail and institutional pooled funds, and recommend strategies for building greater recognition for the GIPS standards within the pooled fund market. The working group is currently finalizing the proposed guidance on what managers need to do to meet the GIPS standards requirement of “delivering a compliant presentation” as well as determining which composite should include pooled fund assets. We expect to release the proposed guidance for public comment in the first half of 2014.

Interested in being notified when the proposed Pooled Fund Guidance Statement is available for public comment, or receiving other news on the GIPS standards? Sign up for our newsletter.


Photo credit: @iStockphoto.com/TommL

About the Author(s)
Annie Lo, CFA

Annie Lo, CFA, CIPM, CAIA, is a director of investment performance standards for CFA Institute for the Asia-Pacific region. She is based in Hong Kong and leads activities related to the Global Investment Performance Standards (GIPS).

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