What are Global Investment Performance Standards (GIPS)?
GIPS is a voluntary set of criteria investment managers use worldwide to guarantee fair disclosure and portrayal of their investment performance. The criteria let investors compare one firm’s performance to another. The GIPS Executive Committee oversees the Global Investment Performance Standards, developed by the CFA Institute, a global network for investment management professionals. Global Investment Performance Standards (GIPS) let investors compare investment businesses internationally.
Global Investment Performance Standards (GIPS) Function
“Set of standardized, industry-wide ethical principles that guide investment firms on how to calculate and present their investment results to prospective clients,” according to the CFA Institute’s Global Investment Performance Standards. The criteria are optional, so investment businesses can comply or not. Due to their global use, the standards make it easier for investment firms to do business in numerous countries by eliminating the need to utilize distinct performance calculation methods for investment presentations.
The CFA Institute says standards include:
- “Let investors compare one firm’s performance to another.
- Composite presentation reduces survivorship biases, misrepresentations, and previous data omissions, boosting openness.
- “Adapt to investing industry changes.
- “Encourage enterprises to spend time and money on internal risk-control procedures and performance benchmarks, which are key to long-term success. The investment firm must follow detailed input data, calculation technique, composite construction, disclosures, presentation, and reporting standards to claim compliance.”
Investment management firms typically claim to be “GIPS compliant.” That may boost credibility for firms outside North America and Europe.
Global Investment Performance Standards history
The Association for Investment Management and Research Performance Presentation Standards preceded the Global Investment Performance Standards. This 1987 optional performance guideline is for US and Canadian investment management businesses.
In 1999, the Global Investment Performance Standards fulfilled the requirement for worldwide norms. The Association for Investment Management and Research, now the CFA Institute, approved a revised set of rules in 2005 to develop a worldwide investment performance standard and replace country-specific requirements.
Global Investment Performance Standards, updated on June 30, 2019, take effect on January 1, 2020.
The CFA Institute reports that “more than 40 markets internationally” adopt the Global Investment Performance criteria, and “84 of the top 100 asset management companies worldwide claim compliance with the GIPS criteria for all or part of their operations. The top 100 GIPS-compliant enterprises handle around US$50 trillion.”
Conclusion
- Investment managers worldwide follow GIPS, a voluntary set of standards.
- GIPS promotes investment performance disclosure and fairness.
- 2020 will see a GIPS update.
