Based on the principles of fair representation and full disclosure, the GIPS standards provide an ethical framework for the calculation and presentation of investment performance for firms in more than 25 countries in Europe, North America, Africa and the Asia Pacific. Investment management firms that comply with the GIPS standards allow clients, prospective clients and consultants the best opportunity to fairly evaluate the past performance of the firm. Compliance is voluntary, but often a competitive necessity , since firms that do not report in a GIPS-compliant fashion are often excluded from competitive bids, AIMR said in its news release.
The public comment period will continue through August 1, 2004. The final GIPS standards are expected to be issued in February 2005, but firms would have until January 1, 2006 to comply with the new requirements.
The GIPS enhancements include requirements that, in order to claim compliance, firms must:
- provide a compliant presentation to all prospective clients
- provide a list and description of composites to any prospect who requests it
- have written policies and procedures used for compliance
- abide by all guidance and interpretations, including the GIPS Handbook
- conduct portfolio valuations at calendar month-end
- be prepared to provide a compliant presentation for any of the firm’s composites
- disclose that the calculation methods and valuation sources are available upon request
- disclose any discretionary use of a sub-advisor
- disclose a description of the investment objectives, style and strategy of the composite.
In addition, under the upgraded GIPS standards, third-party verification of GIPS compliance will become mandatory, as of January 1, 2010.
The proposed modifications to the GIPS standards were developed by the AIMR-sponsored Investment Performance Council, which has 36 members from 15 countries on five continents. The IPC’s members are from firms specializing in mutual funds, private clients, pension funds, private equity, real estate, investment consulting services, performance measurement, and performance verification.
AIMR is the 68,000-member professional association that established AIMR Performance Presentation Standards – the US and Canadian version of GIPS, for North American firms in the early 1990s. The group also is the administrator of the Chartered Financial Analyst curriculum and examination program. For more information, go to http://www.aimr.org/standards/gips/gold_gips_cvrpage.html .