Q & A Database

The GIPS Standards Q&A database contains questions and answers (Q&As) on various searchable topics that provide additional interpretation on an issue. Q&As are considered to be authoritative guidance and must be followed in order to claim compliance with the GIPS standards.

Content from prior Q&As was included in the GIPS Standards Handbook as much as possible and many Q&As were archived. Change the Status drop-down filter to "Archived" to see the archived Q&As.

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Archived

Effective: 10 October, 2016 - 31 December, 2019

Categories: Asset Owner

Source: GIPS Executive Committee

Can an asset owner claim compliance with the GIPS standards if it outsources its investment management, performance calculation, and/or other administrative services?

Many asset owners have limited internal investment staff and expertise and elect to outsource some or all of their investment operations (e.g., accounting, performance) and/or investment management (e.g., hire external managers, outsource the Chief Investment Officer (“CIO”)). If an asset owner chooses to outsource its investment operations and/or investment management, the asset owner still retains the responsibility for its claim of compliance. If outsourcing its investment functions, it can still claim compliance with the GIPS standards as long as it retains discretion over the assets it manages. Many investment management firms that claim compliance with the GIPS standards also use external investment managers, including fund-of-funds managers and investment management firms using sub-advisors for the management of assets or portfolios. The fact that asset owners often use external investment managers (i.e., sub-advisors) to manage some or all of their assets is not unique among firms complying with the GIPS standards, and the same concept for determining discretion applies to asset owners as to all other firms.

If the asset owner has discretion to assign assets to a sub-advisor, those assets must be included in the asset owner’s total firm assets. Once the assets are given to a sub-advisor to manage, the firm will not have control over exactly how those assets are invested. Nevertheless, the firm chose to invest the assets by placing them with a sub-advisor and has the discretion to hire or fire the sub-advisor. The sub-advisor is not required to be compliant with the GIPS standards itself, however it may be helpful to the firm if the sub-advisor is familiar with the GIPS standards.

The asset owner must treat the assets assigned to a sub-advisor as they would other assets that are managed in-house and must include them in total firm assets, assign them to the appropriate composite(s), and include them in the composite performance calculation. The asset owner can only include the sub-advisor’s assets and performance record in composites for the periods that the asset owner assigned the assets to the sub-advisor.

Also, if an asset owner would like to be GIPS-compliant and chooses to outsource performance calculation and/or any other administrative services, it needs to ensure that the relevant outsourced services produce information that is consistent with the GIPS standards requirements and that all GIPS requirements have been met. This includes all aspects of the GIPS standards – valuation, calculation methodology, composite construction, and the creation of the GIPS compliant presentation. A custodian, administrator, and/or consultant that does not have investment management responsibility cannot claim compliance, but may assist asset owners in adhering to various GIPS requirements. It may be helpful to partner with custodians, administrators, prime brokers, and investment managers that understand what is needed to be compliant with the GIPS standards.

Asset owners should assign at least one point person internally to understand and monitor GIPS-compliance. Depending on the asset owner’s size and complexity, it might have a team of people responsible for GIPS compliance. Some may wish to go through the exercise of complying on their own and others may hire a consultant to help with coming into compliance. Once the asset owner attains compliance, it should conduct periodic testing or other monitoring procedures that ensure all outsourced policies and procedures are being applied consistently and appropriately. Asset owners are recommended to undertake a verification to assess whether it has complied with all the composite construction requirements of the GIPS standards and policies and procedures are designed to calculate and present performance in compliance with the GIPS standards.