Pension Funds, Sovereign Wealth Funds, Other Asset Owners: How to Apply GIPS Standards
With the recently issued guidance to help asset owners apply the Global Investment Performance Standards (GIPS®), pension funds, endowments, foundations, sovereign wealth funds, and others now have more effective tools for promoting best practice based on the ethical principles of fair representation and full disclosure.
How did we get here?
The GIPS standards are well established as the premier investment performance standard for investment managers presenting performance to asset owners. The GIPS standards provide guidance on the calculation and presentation of performance to ensure a level playing field for evaluating investment results. The core principles are based on ethics, integrity, fair representation, and full disclosure.
The success of the GIPS standards is due in large part to the asset owner community demanding compliance from their investment managers (i.e., asset managers). Through exposure to the GIPS standards, asset owners recognize their benefit and have worked to apply the same principles to their own performance calculations and presentations. Historically, some thought that only asset managers were permitted to claim compliance with the GIPS standards. However, that is not accurate. An asset owner is able to claim compliance if it has discretion over the assets under management.
And there are clear advantages for asset owners claiming GIPS compliance. It demonstrates the following to legislative bodies, oversight boards, and the general public:
- A voluntary commitment to follow global industry standards with respect to performance calculation and presentation that are based on the principles of fair representation and full disclosure
- Adherence to best practice with respect to the valuation of investments
- The establishment of robust investment performance policies and procedures
- A commitment to methods of calculation and presentation of investment performance that are consistent, transparent, and comparable
- The commitment to adopt the same set of performance standards that are often required of any external investment managers that the asset owner retains
Although some asset owners have been claiming GIPS compliance for years, there was confusion around how to treat certain provisions. That’s because the GIPS standards were originally designed for investment managers marketing to prospective clients and competing for business — a fundamentally different model than is generally employed by asset owners managing an entity’s assets solely for the purpose of supporting an organization and accountable only to its oversight board.
We developed the guidance to answer the call from asset owners requesting greater clarity on how they can comply with the GIPS standards. We sincerely hope this will reduce confusion and pave the way for more asset owners to claim compliance with the GIPS standards.
For more on applying the GIPS standards to asset owners, review this summary of the new Guidance Statement on the Application of the GIPS Standards to Asset Owners. CFA Institute also is providing a free webinar on 25 February to provide an overview of the new guidance and answer any questions you may have. We also are available to answer questions submitted through the GIPS standards helpdesk at firstname.lastname@example.org.
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Image credit: iStockphoto.com/TommL