How Firms Managing Only Pooled Funds Can Claim GIPS Compliance
For more GIPS standards-related content, sign up to receive the GIPS Standards Newsletter.
We made several changes in the 2020 edition of the Global Investment Performance Standards (GIPS®) to make them more applicable to firms managing pooled funds. The GIPS standards classify pooled funds as either a broad distribution pooled fund (BDPF) or a limited distribution pooled fund (LDPF). A BDPF is a pooled fund that is regulated under a framework that would permit the general public to purchase or hold the pooled fund’s shares and is not exclusively offered in one-on-one presentations. Examples of BDPFs include funds registered under the Investment Company Act of 1940 and UCITS funds. An LDPF is any pooled fund that is not a BDPF, such as a private equity fund or an institutional hedge fund.
The “Guidance Statement on Firms Managing Only Broad Distribution Pooled Funds” addresses how firms that manage only BDPFs can claim compliance with the GIPS standards.
Accommodations for Firms Managing Only BDPFs
When a firm claims compliance with the GIPS standards, it needs to evaluate the types of portfolios it manages (e.g., segregated accounts, pooled funds) to determine the applicable requirements for preparing and presenting performance for prospective clients of segregated accounts and pooled fund prospective investors. The firm must make every reasonable effort to provide a GIPS Report to all prospective clients of composite strategies and LDPF prospective investors, but not to BDPF prospective investors. (A GIPS Report is a presentation for a composite or a pooled fund that contains all of the information required by the GIPS standards.) Exempting BDPFs from the requirement to provide a GIPS Report to prospective investors acknowledges two practical realities:
- Firms managing BDPFs are likely adhering to fund regulations that are far more comprehensive than what the GIPS standards require.
- Firms managing BDPFs do not always interact directly with pooled fund prospective investors.
A firm may include a claim of compliance with the GIPS standards only in a GIPS Report or a GIPS Advertisement. (A GIPS Advertisement is an advertisement by a GIPS-compliant firm that adheres to the requirements of the GIPS Advertising Guidelines.) Preparing GIPS Advertisements is not required. Because a firm that manages and markets only BDPFs is not required to provide a GIPS Report to BDPF prospective investors and is also not required to create a GIPS Advertisement for BDPFs, a claim of compliance with the GIPS standards might not appear in any of the firm’s marketing materials.
Guidance Statement
The “Guidance Statement on Firms Managing Only Broad Distribution Pooled Funds” addresses the situation in which a firm manages only BDPFs and elects not to create any GIPS Reports or GIPS Advertisements but wishes to claim compliance with the GIPS standards in consultant databases or when responding to requests for proposal (RFPs). In this situation, the firm would follow the Guidance Statement and must also comply with all of the applicable requirements of the GIPS Standards for Firms.
If a firm manages only BDPFs but chooses to prepare GIPS Reports or GIPS Advertisements, then the firm would not follow the Guidance Statement and must comply with all of the applicable requirements of the GIPS Standards for Firms.
Consultant Databases and RFPs
Firms managing only BDPFs are not required to provide a GIPS Report to BDPF prospective investors, which includes consultant databases. A firm managing only BDPFs may wish to present performance to consultant databases or respond to RFPs and claim compliance, but not claim compliance within a GIPS Report.
Consultant databases or RFPs often require investment management firms to fill in monthly or quarterly performance data. The consultant databases or RFPs then ask the manager to indicate whether or not the data presented have been prepared in accordance with the GIPS standards. When responding to such a question, a firm that claims compliance with the GIPS standards may state that the returns “are prepared in compliance with the GIPS standards” if the performance information used to report to the consultant database or complete the RFP is consistent with the information that would be used to prepare the corresponding GIPS Report, if one were to be prepared.
Applicable Requirements
Many provisions in the GIPS standards relate to the preparation and presentation of GIPS Reports; however, there are many other provisions that firms managing only BDPFs also need to consider. The Guidance Statement explains which provisions in Section 1, Fundamentals of Compliance, and Section 2, Input Data and Calculation Methodology, apply and which do not.
In addition, this Guidance Statement highlights key concepts within the GIPS standards that firms managing only BDPFs need to consider.
Compliance Statement
The Guidance Statement includes a Compliance Statement that may be used when a firm managing only BDPFs reports performance to a consultant database or responds to an RFP. The Compliance Statement will depend on whether the firm is verified. The Compliance Statement for a verified firm is as follows:
[Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®). [Insert name of firm] manages only broad distribution pooled funds. [Insert name of firm] has been independently verified for the periods [insert dates]. The verification report(s) is/are available upon request.
A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. For firms that manage only broad distribution pooled funds, verification provides assurance on whether the firm’s policies and procedures related to broad distribution pooled fund maintenance, as well as the calculation of performance of such funds, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis and whether the provision of the performance of such funds is in accordance with the “Guidance Statement for Firms Managing Only Broad Distribution Pooled Funds.” Verification does not provide assurance on the accuracy of any specific performance report.
The following Compliance Statement is for a firm managing only BDPFs that has not been verified:
[Insert name of firm] claims compliance with the Global Investment Performance Standards (GIPS®). [Insert name of firm] manages only broad distribution pooled funds. [Insert name of firm] has not been independently verified.
Effective Date
Firms are required to apply this guidance for periods beginning on or after 1 July 2024. Firms are encouraged, but not required, to apply this guidance prior to the effective date.
Conclusion
CFA Institute strives to make adhering to the GIPS standards attainable while also setting industry best practice. Whether a firm manages only BDPFs or manages BDPFs as well as segregated accounts and/or LDPFs, the GIPS standards are applicable. We hope that this Guidance Statement provides a pathway for a wider range of firms to attain compliance with the GIPS standards and adhere to industry best practice.
Any questions about GIPS compliance? Contact Beth Kaiser Schwartz, CFA, CIPM, at [email protected] or the GIPS Standards Helpdesk at [email protected]. You can also register for the GIPS Standards Newsletter.
If you liked this post, don’t forget to subscribe to Market Integrity Insights and CFA Institute Research and Policy Center.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
Image credit: ©Getty Images/olaser
Professional Learning for CFA Institute Members
CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Market
