Importantly, the GIPS Executive Committee is considering a number of further revisions to the standards. The intention is to publish a “GIPS 2010” set of standards in the first half of 2010 and to encourage early adoption by investment firms, with an implementation date for the standards of 1 January 2011. The key proposals for “GIPS 2010” are: • the firm’s compliance statement (to GIPS standards) disclose whether its performance information has been independently verified; • firms report portfolio performance based on fair value accounting; • improved risk disclosures that will provide sufficient information to allow a prospective client to understand the relevant risks of the strategy; • improving disclosure of the scope and purpose of verification of the firms performance information;

• require the disclosure of three-year annualised ex-post standard deviation of the composite and benchmark; and • firms will be required to disclose the percentage of composites composed of proprietary assets (i.e. “seed” capital or “house” money). One of the key proposals for GIPS 2010, which is a potential weakness with the current standards, is to require investment management firms to include an explicit disclosure of whether or not the firm has had an independent third party complete a “verification” of the firm’s performance information. Verification is the review of the investment management firm’s performance measurement processes and procedures by an independent third party who tests that:

• the firm has complied with all composite construction requirements of the GIPS standards on a firmwide basis; • the firm’s processes and procedures are designed to calculate and present performance results in compliance with GIPS. The verification work applies to the entire investment management firm and not only specific composites. The advantage to investment management firms in undertaking an independent verification is that it not only provides a marketing advantage with clients and consultants (as well as with regulators), but also improves the firm’s internal processes and procedures.

Widespread use of GIPS will benefit superannuation members, fund trustees as well as Government and other institutional investors by instilling a global bestpractice standard for the calculation and presentation of investment performance information by investment firms. Drew Vaughan is a principal of Dymond, Foulds & Vaughan. He consults to institutional superannuation funds and investment firms on all issues associated with the investment and administration of investment portfolios, including the independent verification of investment firms under the GIPS standards. Vaughan is also the Australian member of the Editorial Committee for Global Investment Performance Standards (GIPS).