- CFA Exams
- 2024 Level I
- Topic 10. Ethical and Professional Standards
- Learning Module 4. Introduction to the Global Investment Performance Standards (GIPS)
- Subject 1. Why were the GIPS Standards Created?
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Subject 1. Why were the GIPS Standards Created? PDF Download
The financial markets and investment management industry has become increasingly global in nature. A common problem when reporting investment performance across different borders is that some countries have performance measurements and disclosures that are tailored specifically to them but that differ greatly from those in other countries. Some countries do not even have any standardized approaches for investment firms to follow to ensure fair representation and full disclosure of performance information.
In the past, making meaningful comparisons on the basis of accurate investment performance data was difficult because of some misleading practices, such as:
The GIPS standards lead investment management firms to avoid misrepresentations of performance and to communicate all relevant information that prospective clients should know in order to evaluate past results.
Who Can Claim Compliance
The GIPS standards apply primarily to firms that manage assets. The performance results of firms adopting GIPS will be more readily comparable. However, while firms are encouraged to adopt GIPS, the standards are voluntary.
Compliance is a firm-wide process.
Who Benefits from Compliance?
Asset managers and their prospective clients, asset owners and their oversight bodies are the primary beneficiaries of GIPS. GIPS allow effective comparisons; they can directly compare the performance results of firms adopting GIPS. Clients must still use due diligence.
User Contributed Comments 6
|Jeanette||GIPS are a voluntary set of standards. GIPS are standards by which all firms calculate and present performance to clients and prospective clients|
|rimu||1. the idea is to generate reporting standard that can compared by clients across all companies in diferrent companies|
|jmca||In a nut shell, investors want to be able to compare "apples to apples" when making investment decisions and GIPS make this fair basis of comparison possible.|
|ChrisHam||The GIPS sets a standardized, industry wide approach for all investment management firms in calculating and reporting historical investment results.|
|gill15||This is an optional section -- Are you guys doing it?|
|bilas||Investment Firm -
Firm that invests the pooled funds of retail investors for a fee. By aggregating the funds of a large number of small investors into a specific investments (in line with the objectives of the investors), an investment company gives individual investors access to a wider range of securities than the investors themselves would have been able to access.
There are two types of investment companies: open-end (mutual funds) and closed-end (investment trusts).