Ethical and Professional Standards

Reading 5. Global Investment Performance Standards (GIPS)

Learning Outcome Statements

a. describe the key features of the GIPS standards and the fundamentals of compliance;

CFA Curriculum, 2020, Volume 1

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Subject 1. Introduction: The Vision Statement, Objectives and Key Characteristics of GIPS Standards

The overall purpose of GIPS is to provide guidelines for fair and full disclosure of investment performance. This will allow current and potential clients to properly interpret investment results over time and between firms.

There are four goals of GIPS:

  • Bolster investor confidence by ensuring the completeness, fairness, and standardization of calculation and presentation of investment performance on a global basis.
  • Serve as a minimum standard to which all investment managers in the world should adhere.
  • Enable global investment management firms to present performance results that are comparable with firms in other countries.
  • Facilitate communications between investment managers and their prospective clients on evaluating historical performance results and developing future strategies.

In 1999, the Investment Performance Council (IPC) was created to provide an implementation structure for the GIPS standards. All countries are encouraged to adopt the GIPS standards as the common method for calculating and presenting investment performance. When applicable local or country-specific laws or regulations conflict with the GIPS standards, firms should comply with the GIPS standards in addition to those local requirements.

As of January 2010, more than 32 countries had adopted or were in the process of adopting the GIPS standards.

Now IPC is entering its second phase of the convergence strategy to the GIPS standards: to evolve the GIPS standards to incorporate local best practices from all regional standards.

Vision Statement

A global investment performance standard leads to readily accepted presentations of investment performance that

  • present performance results that are readily comparable among investment managers, without regard to geographic location, and
  • facilitate a dialogue between investment managers and their prospective clients about the critical issues of how the manager achieved performance results and future investment strategies.

Objectives

  • Obtain worldwide acceptance of a standard for the calculation and presentation of investment performance in a fair, comparable format that provides full disclosure.
  • Ensure accurate and consistent investment and performance data for reporting, record keeping, marketing, and presentation.
  • Promote fair, global competition among investment firms for all markets without creating barriers to entry for new firms.
  • Foster a notion of industry self-regulation on a global basis.

Key Characteristics

  • Firm definition: a direct business entity.
  • GIPS are ethical standards, not legal standards, for performance presentation. The objective is to present performance results fairly and with full disclosure.
  • Composites: All actual, fee-paying, discretionary portfolios must be included in at least one composite.
  • Calculation and presentation requirements.
  • The integrity of input data.
  • There are two components: requirements and recommendations.
  • Appropriate disclosure when local laws or regulations conflict with the standards.
  • The eight sections of GIPS standards.
  • The standards will evolve to address new aspects of investment performance.

Take a QuizThere are 2 basic questions available.

User Contributed Comments 16

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surob

If local law conflicts with GIPS, how come you can comply with both? Any thoughts? I am a bit confused. Thanks for your comments in advance

pierreE14

hi surob
GIPS is a voluntary guideline for presentation of fair reality. Not a legal requirement.
If conflict => follow the law.
I guess conflict would be disclosed

quynhnk79

Is it right with the No.2 statement above?
(serve as the minimum standard...)
1. Refer to CFA reading 4, Objectives, not include this point
2. Reading 4, Background: stating that GIPS are no longer a minimum worldwide standard, instead, promotes highest performance measurement and presentation practices...

Someone can explain?

Khadria

Under section

(h) The appropriate disclosure when the GIPS standards and local regulations are in conflict.

it is stated:
"In cases of conflicts with GIPS, the standards require that local laws and regulations take precedence over GIPS."

but in this section it says:
"When applicable local or country-specific law or regulation conflicts with the GIPS standards, firms should comply with the GIPS standards in addition to those local requirements."

WHAT IS TRUE?

netty

I agree with Khadria, When there is a conflict, the standards require that local laws n regulations take precedence over GIPS hence how can firms comply with both?

bobert

I believe it is the stricter rule dominates, and also implement the rest of GIPS guidelines.

sanyukta

yes, i agree with bobert, the stricter rule applies..

jainrajeshv

As mentioned by pierreE14 We should follow local laws and disclose the conflicts separately.

Shalva

You must adhere to the local law, but fully disclose what was the nature of conflict with GIPS. In this case, I believe, you also stay compliant to GIPS

CFAVick

I agree with Shalva. The stricter rule principle applies to the 7 standards not to GIPS.

ChrisHam

According to the book, if there is a conflict with the local law, then there should be a full disclosure while abiding by the local law.

riouxcf

You can publish a GIPs compliant presenation AND a local law compliant presenatation. Two presentations. Then on the local law presentation you make it as GIPs compliant as possible and disclose what it is about it that is not GIPs compliant and the reasons why (i.e. local law)

schweitzdm

Just a heads up that reading 4 is marked as optional in the CFAI book. That means it won't be tested on.

Tkauffman

Only certain parts of reading 4 are optional. Beware or markings on the page.

dirdeb

I interpret it like this: If the local law and GIPS conflict, the local law must take precedent (as you can't voluntary enter into anything illegal) That said, when possible you must comply with GIPS in ADDITION to the law.

00ahmed

I understand the meaning of composite in general but what does it mean here in GIPS context?