Views on improving the integrity of global capital markets
17 June 2014

Is Your Investment Firm GIPS Compliant? Enquiring Minds Need to Know

On 7 April the Global Investment Performance Standards (GIPS®) Executive Committee released a proposal that would require firms claiming compliance with the GIPS standards to notify CFA Institute and to provide certain demographic information. This information includes total firm assets for GIPS-defined firms, types of asset classes managed, the various investment vehicles offered, the firm’s verification status, and the name of their verifier.

When discussing the proposal, I am often asked why we need this information and what we are going to do with it. For starters, aren’t you interested? While it may not be keeping you up at night, many people are curious about the state of GIPS compliance and the competitive implications of the trends. Heading up the GIPS standards (something I always dreamed about as child), I am frequently asked by regulators, journalists, and others about how many firms claim compliance on a global, regional, or local level. Similarly, I field questions regarding compliance rates of firms in different asset classes (e.g., private equity, real estate), with different investment vehicles (e.g., pooled funds, separate accounts), in different market segments (e.g., institutional, private wealth, retail), and of different firm sizes. Although various firms do conduct surveys related to GIPS compliance, including the ACA Compliance/eVestment survey released last week, none of them include all firms that claim compliance.

By having firms provide this information, we can not only respond to these questions but also evaluate our own performance and effectiveness. We will be able to determine if we are making progress and which segments of the market or geographic regions need support. This information will allow us to directly communicate with firms to keep them updated on the latest interpretations, proposals, and other developments and opportunities.

The proposal also includes the option to have each firm’s name and website listed on the GIPS standards website. Doing so would allow investors to search and confirm a firm’s statement of compliance. Maintaining a comprehensive list of compliant firms also would allow firms to assess the competitive landscape. Some firms have indicated that such information would be useful when obtaining management support to initially become compliant and when evaluating marketing distinctions relative to competitors. As a point of comparison, we also require firms to notify us when claiming compliance with our Asset Manager Code of Professional Conduct, and to date more than 1,000 firms across the globe have done so.

Why ask for the firm’s assets under management? The true point of evaluation is not the number of firms that claim compliance, but rather the amount of assets managed by compliant firms. Won’t there be double counting of assets because sub-advised assets can be claimed by both the firm that hires the sub-adviser as well as by the sub-adviser itself? Sure, but if all of these numbers are reported consistently, we can make an apples-to-apples comparison over time. What if a firm cannot legally provide this information for some reason? This is all information that is readily available from a firm’s compliant presentation. Theoretically there may be local laws or regulations that prevent firms from providing some of this information, and as with any other regulatory conflict, the GIPS standards allow for these exceptions.

Why not make firm notification voluntary? Quite simply, voluntarily providing this information will not yield comprehensive data. The value and usefulness of the information is lost when it is not complete.

Practically speaking, how is this going to work and who will have access to the information? We have created a web-based form that firms will be able to complete and submit to CFA Institute. The proposal indicates that firms will have until 31 March each year to submit their information as of the previous year-end. We believe that this provides sufficient time for firms to finalize their year-end performance. Once the information is provided, it only will be accessed by CFA Institute staff, with statistics reported on a summary basis (e.g., by region). Each subsequent year, firms will receive reminder emails to update their information. If a firm’s information is not updated by 31 March, that firm’s name will be removed from the GIPS standards website.

The proposal is open for public comment through 7 July, and I encourage you to provide your feedback.

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About the Author(s)
Jonathan Boersma, CFA

Jonathan Boersma, CFA, is the former head of Professional Standards and former executive director of the GIPS standards at CFA Institute. He was responsible for developing, maintaining, and promoting the GIPS standards, Code of Ethics and Standards of Professional Conduct, and other CFA Institute standards of practice.

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