The ethical standards followed by investment managers relating to the full disclosure and fair representation of the results of their investment performance
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What are the Global Investment Performance Standards (GIPS)?
The Global Investment Performance Standards (GIPS) are the ethical standards followed by investment managers relating to the full disclosure and fair representation of the results of their investment performance. The CFA Institute formulated the standards and the GIPS Executive Committee is responsible for the development and interpretation of the standards.
Note that the adoption of the standards is voluntary. However, the GIPS are widely considered as the industry standard and are adopted by many investment management firms across the world. Compliance with the standards promotes a company’s credibility and ensures uniformity of reporting for businesses that operate in multiple countries.
Global Investment Performance Standards – Current Standards
As of 2018, the latest version of the Global Investment Performance Standards is the 2010 GIPS Edition. The 2010 edition includes both requirements and recommendations for investment management firms and investment managers. Companies must conform to all the requirements defined in the GIPS to claim compliance with the standards.
The (new) 2020 GIPS Edition is expected to be released in June 2019, with an effective date of January 1, 2020.
Components of the GIPS
The current Global Investment Performance Standards edition covers the following areas:
1. Provisions of the GIPS
The provisions section includes the main requirements and recommendations regarding compliance, input data consistency, calculation methodology, composite construction, disclosure, and presentation and reporting.
In addition, this section also comprises the specific requirements and recommendations for companies operating in real estate and private equity, and the holders of wrap fee/Separately Managed Account (SMA) portfolios.
2. GIPS Valuation Principles
The second part of the GIPS is devoted to the applicable valuation principles. This section includes the GIPS definition of fair value, as well as the valuation requirements and recommendations. The valuation principles ensure that performance calculations are transparent and meaningful.
3. GIPS Advertising Guidelines
The advertising section defines the requirements for advertising options that mention a company’s compliance with the GIPS. The requirements include the elements that must be incorporated in any materials distributed to prospective clients.
The last section of the GIPS defines the verification procedure of the GIPS status and the requirements for the procedure. Although the verification process validates the credibility of the company’s claim of compliance with the GIPS, it is not a mandatory procedure.
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