GIPS Standards’ 2010 Revisions Open for Public Comment

 

The GIPS Executive Committee (EC), the governing body for the Global Investment Performance Standards (GIPS), has announced that it is seeking comments on proposed changes to the investment industry performance standards. The public comment period ends on July 1, 2009.

 

The GIPS standards are universal, voluntary standards to be used by investment firms for calculating, measuring, and presenting investment performance that ensure fair representation and full disclosure. The GIPS standards benefit two main groups: investment management firms and investors. By choosing to comply with the GIPS standards, investment management firms assure prospective and current investors that their reported historical track record is both complete and fairly represented.

 

The proposed revisions to the GIPS standards include:

 

  1. Compliance Statement – As part of the GIPS compliance statement, investment firms will be required to disclose whether their firm has been verified.
  2. Fair Value – The proposal requires firms to report portfolio performance based on fair value accounting.
  3. Risk Disclosures – As part of the composite description, firms will be required to disclose sufficient information to allow a prospective client to understand the relevant risks of the composite strategy.
  4. Verification – The scope and purpose of verification, as well as the required verification procedures that must be followed by verifiers have been clarified in Section III in order to increase the understanding and consistency of verification.
  5. Non-fee-paying Portfolios – Investment firms will be required to include all discretionary non-fee paying portfolios in at least one composite.
  6. Standard Deviation – Investment firms will be required to disclose the three-year annualized ex-post standard deviation of the composite and benchmark.
  7. Proprietary Portfolios – Firms will be required to disclose the percentage of composites composed of proprietary assets (e.g., “seed” capital or “house” money).
  8. Real Estate External Valuation – For periods beginning January 1, 2012 or after, real estate investments must be valued by an independent external valuer or appraiser at least once every 12 months.

"I am very excited for the Executive Committee to release the GIPS 2010 proposals for public comment,” said Sunette Mulder, EC chair and a senior policy adviser for ASISA in Cape Town, South Africa. “In the recent turbulent times, it is now, more than ever, important for prospective investors to have reassurance in the policies and procedures that are followed by investment managers. It is also important that the GIPS standards stay current and address all aspects of the investment sphere. In this regard a lot of work has been done in the field of alternative investments and the application of the Standards to these strategies. We call on all stakeholders to review this exposure draft and supply us with their feedback."

 

The current version of the GIPS standards became effective January 1, 2006 and investment managers who claim compliance will have to adhere to the revised standards beginning January 1, 2011. To maintain global relevance, and recognizing the dynamic nature of the investment industry, the GIPS standards are continually updated through new provisions, guidance statements, and interpretations. The GIPS EC, in collaboration with various subcommittees and working groups, has reviewed the existing provisions and guidance in an effort to eliminate those no longer necessary and has added new provisions that promote best practice. 

 

“Investment managers’ adherence to the GIPS standards can be a big step in improving investor confidence during this time of market turmoil and change,” said Jonathan Boersma, CFA, GIPS executive director. “So, the time is right for us to present these proposed changes to the Standards. The GIPS standards are increasingly valued by investment managers, clients, investment consultants, and regulators, so it is important that the investment industry has the opportunity to ensure that they remain practical and relevant.”