As CFA Institute celebrates the 30th anniversary of performance standards, there is cause to celebrate that approximately 1,600 firms claim compliance with the Global Investment Performance Standards (GIPS^®) and that there are 40+ GIPS Sponsors supporting the GIPS standards. Ahead of this milestone anniversary, the Executive Committee distributed a consultation paper and received input from GIPS stakeholders and other industry participants that will be used to inform the development and future shape of the Standards in its new iteration, GIPS 2020.

CFA Institute and StatPro, a global provider of portfolio analytics, recently hosted events in Boston and London on the impact of the GIPS standards and GIPS 2020. The following video provides highlights from the sessions and the Q&A with a panel of experts, which included Iain McAra, Director of the GIPS standards at CFA Institute, Carl Bacon, chair of the GIPS Executive Committee, and financial professionals, sharing their insight into the daily experience of GIPS compliance.

GIPS compliance continues to grow and is making a significant impact in the investment industry. The GIPS standards not only ensure fair representation and full disclosure of firms’ investment returns as expressed through consistent past performance information, but they also communicate firms’ belief in self-regulation according to the ethical best practices supporting the calculation and presentation of investment performance.

The Benefits of GIPS Compliance

There are both obvious and unexpected benefits attributable to complying with the GIPS standards. A consistent approach to the valuation and calculation of investment returns and risk benefits both prospective and existing clients. Firms claiming compliance must provide a full and fair investment performance presentation to every qualified prospective client, and that underlying information is built from all actual discretionary portfolios, which are the portfolios of existing clients. Additionally, maintaining the documented policies and procedures required as part of GIPS compliance strengthens the internal controls and governance of firms claiming compliance with the GIPS standards, which can, in turn, be leveraged throughout the investment firm.

Firms have indicated that being recognized as following an independent, self-regulated, and globally recognized ethical standard that addresses the quality and consistency of input data related to calculation and presentation of past performance is beneficial for due diligence reviews that are conducted by both prospective and existing clients. Being able to indicate adherence to recognized standards rather than having to justify a firm’s proprietary approach during every review is a benefit and allows more time to be spent discussing other aspects of investment management, rather than focusing on data quality.

Internal review of the information derived from maintaining GIPS compliance can lead to insights into the efficacy of the controls around many aspects of the investment process. These insights can feed into internal risk management, business continuity/recovery, the compliance function, and internal audit to highlight a few of the potential internal users and uses. Some firms use the information as a primary input into the manager compensation discussion.

Because of the emphasis on consistency and comparability, and the requirement that policies and procedures be determined in advance, there is integrity in the information being provided with the elimination of selectivity. The data being provided is a non-cherry-picked distillation of the manager’s ability.

What Is the Point of GIPS 2020?

An updated framework for the GIPS standards offers opportunities to streamline controls and apply the Standards more broadly than the current structure of the GIPS standards allows. This fulfils the GIPS mission “to promote ethics and integrity and instill trust through the use of the GIPS standards by achieving universal demand for compliance by asset owners, adoption by asset managers, and support from regulators for the ultimate benefit of the global investment community.”

GIPS 2020 provides the GIPS Executive Committee with the opportunity to reshape the GIPS standards with the goal of ensuring that the appropriate full and fair presentation for each investment vehicle is delivered to the respective client base, while leveraging the information already being produced and broadening the application of the GIPS standards within the investment management industry. Most importantly, with GIPS 2020, the benefits of the GIPS standards can be experienced as widely as possible for the ultimate benefit of society.

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Photo Credit: ©Getty Images/Nuthawut Somsuk