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.

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  • Current

    Effective: 1 July, 2021
    Categories: FINRA
    Source: GIPS Standards Technical Committee

    Our firm distributes a pooled fund through a placement agent. In accordance with the Financial Industry Regulatory Authority’s (FINRA’s) Regulatory Notice 20-21, we will provide the since-inception annualized internal rate of return (IRR) and fund metrics that are calculated in a manner consistent with the GIPS standards for inclusion in the fund’s private placement offering.

    We know that the GIPS standards do not allow statements indicating partial compliance with the GIPS standards (Provision 1.A.8) or referring to the calculation methodology as being “in accordance,” “in compliance,” or “consistent” with the GIPS standards (Provision 1.A.9). We would like to include in the private placement offering a statement that the IRR and fund metrics have been calculated in accordance with the calculation requirements of the GIPS standards.

    What statement about meeting the calculation requirements of the GIPS standards, if any, can be included in retail communications concerning a private placement offering?

    Firms that calculate IRRs and fund metrics according to the GIPS standards calculation requirements for the purpose of complying with FINRA’s Regulatory Notice 20-21 may disclose this fact using specific language when the required information is included in retail communications concerning private placement offerings. The GIPS standards require the following information:

    • Since-inception internal rate of return (SI-IRR)
    • Since-inception paid in capital
    • Since-inception distributions
    • Cumulative committed capital
    • Total value to since-inception paid-in capital (investment multiple or TVPI)
    • Since-inception distributions to since-inception paid-in capital (realization multiple or TVPI)
    • Since-inception paid-in capital to cumulative committed capital (PIC multiple)
    • Residual value to since-inception paid-in capital (unrealized multiple or RVPI)

     

    If a subscription line of credit is used, the firm must present the SI-IRR both with and without the subscription line of credit. However, if the subscription line of credit was repaid within 120 days using committed capital drawn down through a capital call, and the subscription line of credit was not used to fund distributions, then presenting the SI-IRR without the subscription line of credit is not required.

    The GIPS standards website (gipsstandards.org) includes a checklist for the data that firms must use for these calculations as well as the calculations themselves. You can download this checklist as an Excel file (XLSX) under Resources on the Tools page, in the Firms section: CFA Institute Checklist for FINRA Reg Notice 20-21 and the GIPS Standards.

    Firms and their agents may use the following language in retail communications concerning private placement offerings that are prepared in accordance with FINRA Regulatory Notice 20-21, as long as the statements are true and all of the information required by the GIPS standards is included.

    For firms that do not claim compliance with the GIPS standards:

    [Insert firm name] has calculated the since-inception internal rate of return (SI-IRR) and fund metrics using a methodology that is consistent with the calculation requirements of the Global Investment Performance Standards (GIPS®). [Insert firm name] does not claim compliance with the GIPS standards. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote [insert firm name], nor does it warrant the accuracy or quality of the content contained herein.

    For firms that claim compliance with the GIPS standards:

    [Insert firm name] has calculated the since-inception internal rate of return (SI-IRR) and fund metrics using a methodology that is consistent with the calculation requirements of the Global Investment Performance Standards (GIPS®). [Insert firm name] claims compliance with the GIPS standards. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote [insert firm name], nor does it warrant the accuracy or quality of the content contained herein.

    This language is an exception to Provisions 1.A.8 and 1.A.9. These statements may be used only by firms and their agents in retail communications concerning private placement offerings that are prepared in accordance with FINRA Regulatory Notice 20-21 and may not be used in any other instances.

    This information is the opinion of CFA Institute and has not been adopted or endorsed by FINRA.