The Evolution of the GIPS Standards: Introducing GIPS 20/20
The sold-out 20th Annual GIPS® Standards Conference attracted more than 400 attendees from 27 countries. Carl Bacon, CIPM, chair of the GIPS Executive Committee and chair of StatPro Group, and Jonathan Boersma, CFA, executive director of Global Investment Performance Standards, CFA Institute, gave the key note address in which they shared the vision for the evolution of the GIPS standards.
GIPS 20/20 — Vision for the Future
The last update of the Global Investment Performance Standards (GIPS) was in 2010, as Jonathan talks about in his blog post about the four toughest questions facing the evolution of the GIPS standards.
The success of the GIPS standards is undeniable, with industry organizations in 38 countries endorsing the Standards. More than 1,600 firms worldwide have notified CFA Institute of their claim of compliance, including part or all of 23 of the 25 largest asset management firms and 74 of the 100 largest asset management firms, representing more than 60% of global assets under management.
Despite this success, the mission of the GIPS standards is for all asset managers to comply. To achieve this goal, the Standards should be as simple as possible to remove complexity and perceived barriers to compliance and ensure relevance to all asset classes and types of asset managers.
Why Change the Standards?
Although composites are the foundation of the GIPS standards, composites are not appropriate for all investment products. In particular, pooled funds do not fit neatly into the current composite-oriented framework. To achieve broader adoption of the Standards, the evolution will address product-oriented firms and calculation differences (internal rate of return versus time-weighted rate of return).
The GIPS 20:20 vision is structured around the relationship between the asset manager and the client:
- One-to-One: Strategy focused (the current, traditional focus of the GIPS standards: separate accounts, composites, customized, client specific, client input)
- One-to-Many: Product focused (pooled funds, standardized, client agnostic, financial statements, no client input)
- One-to-None: Proprietary (asset owner, proprietary assets, no clients)
As Carl reminded the audience, the core of the GIPS standards is comparability — a global passport for all asset managers across all assets types. The challenge will be to maintain the cohesiveness and integrity of the GIPS standards and accommodate all asset classes (rather than segmenting them) and address client relationships. Stay tuned for updates on the vision and evolution of the GIPS standards.
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Photo credit: ©iStockphoto.com/Courtney Keating