Compliance with the Global Investment Performance Standards (GIPS) is voluntary, offering a set of ethical principles that guide investment firms in calculating and presenting their performance to prospective clients. This framework aims to ensure transparency, comparability, and fair representation of investment performance across various firms and strategies.
Compliance is Important
While compliance with the GIPS standards is not required, firms seeking to present their investment performance rely on the GIPS standards for the most accurate and appropriate methods of performance calculation. There are various reasons why firms choose to comply with GIPS standards. One key reason is that it instills confidence in the performance calculations. Additionally, GIPS-compliant firms are often better positioned to meet their regulatory requirements. This is because GIPS-compliant firms have documented policies and procedures for calculating historical performance and maintain consistent practices, preventing them from cherry-picking their best results.
Steps for Implementing GIPS Compliance
- Understand the requirements of the GIPS standards
- Assess Firm’s structure and scope of business
- Define and document GIPS policies and procedures
- Define composites
- Construct and calculate composite performance
- Assess pooled funds and whether strategies are offered as segregated accounts
- Create GIPS Reports
- Adopt GIPS policies and procedures and ensure all stakeholders understand the obligations
- Consider GIPS verification
- Continuous monitoring and ongoing compliance
Click here to learn more about the process.
Firms that claim compliance with the GIPS Standards must recognize the significant commitment of resources required for implementation and maintenance. This process demands either in-house capabilities or the engagement of an external consultant. If a firm chooses to rely on its employees, these individuals must possess comprehensive knowledge of the GIPS requirements and the dedication to oversee the ongoing compliance process. Expertise and the time required for proper implementation are often underestimated, leading to potential challenges in meeting the requirements. Ensuring that the Firm has either sufficiently trained staff or access to external expertise is crucial for achieving and maintaining GIPS compliance, which ultimately enhances the firm’s credibility and transparency in performance reporting.