The Global Investment Performance Standards aim to achieve full disclosure and fair representation of investment performance, writes DREW VAUGHAN. More awareness of the Global Investment Performance Standards (GIPS) is needed by institutional investors as well as investment management firms and preparers of investment performance information. The GIPS standards are ethical principles that apply to the way investment performance is calculated and presented to prospective and existing clients of investment management firms.
The key intent of the GIPS standards is to prohibit managers selectively reporting only their superior investment returns, and to provide a consistent basis for clients and other users of investment performance information to compare investment managers. The GIPS standards were originally championed by the CFA Institute, and they are now the responsibility of the GIPS executive committee which is a global council of investment professionals sponsored by the CFA Institute. Although the CFA Institute is funding and administering the activities of the GIPS standards, the success of the standards is the result of an alliance among experts from various fields within the global investment industry.
The origins of the GIPS standards were the Association for Investment Management and Research – Performance Presentation Standards (now the CFA Institute) which were first published in 1993. Australia adopted the AIMR-PPS standards in the late 1990s. A number of evolutions of the standards have taken place since then and from 1 January 2006, GIPS became the formal global standard for investment performance calculation and presentation. The standards are now sponsored as best practice in 31 countries around the world. The standards aim to achieve full disclosure and fair representation of investment performance with all countries adopting the GIPS standards as the standard for investment firms seeking to present historical investment performance. Hopefully, GIPS compliance will become a “passport” that allows investment firms to enter the arena of investment management competition on a global basis and to compete on an equal footing.
GIPS will level the playing field and promote global competition among investment firms, which will, in turn, provide prospective clients with a greater level of confidence in the integrity of performance presentations as well as the general practices of a compliant firm. GIPS are standards and not laws. Investment firms do not have to be GIPS compliant. The objectives of the GIPS standards are to: • ensure accurate and consistent data is prepared by investment management firms • obtain worldwide acceptance of standards for calculating and presenting investment performance results • promote fair, global competition among investment management firms, and • promote industry selfregulation on a global basis Three main groups will benefit from the GIPS standards: investors, investment managers, and intermediaries and regulators.