gips update: best practices in performance managementaop.or.th/pdf_files/gips.pdf · requirements...

29 JANUARY 2013

GIPS Update: Best Practices in Performance Management

Trevor Persaud, Managing Director, ASEAN & Taiwan

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p.2

Overview

› Background of the GIPS standards

› Marketplace Statistics on GIPS Compliance

› The Value of GIPS to Investors and Consultants

› GIPS Compliance & Verification

› Common Questions and Misperceptions on the GIPS

standards

› Best Practice Questions to use in the Due Diligence

Process

p.3

Why Were Performance Standards Necessary?

› Lack of reporting consistency

› Back testing

› Portable performance

› Model Portfolios

› Survivorship

› Representative portfolio

› Lack of industry-wide comparability

› Lack of regulatory guidance

› Self-regulation of the industry

p.4

p.7

Evaluating Performance

Is this a good asset manager ?

40

60

80

100

120

140

160

Asset Manager Benchmark

p.8


Who is the better

asset manager ?

Manager A Manager B

5 % 5 % 10 yr return

10 % 43 % Std Dev

p.9


40

60

80

100

120

140

160

Asset Manager (Total) Benchmark (Price)

p.10


Asset Manager Benchmark

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%


p.11


-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%


Manager A Benchmark Composite

The Global Investment Performance Standards (GIPS®)

› Administered by the CFA Institute

› Voluntary, ethical principles for the

reporting of investment performance

results

› Facilitate apples-to-apples comparison

› Fair representation & full disclosure

› Foster industry-wide best practices and

self-regulation

› Enhanced internal controls as well as

marketing benefits

p.12

The evolution of the GIPS Standards?

› CFA Institute (at the time known as the AIMR) with input

from Industry professionals around the world created the

GIPS standards

› Organizations in 35 countries sponsor and promote the

Standards

› Need for a global standard GIPS formally endorsed in

1999 with individual country versions

› Converged to one global standard (the GIPS standards)

with the release of 2005 edition

› 2010 update of the GIPS standards (effective 01/01/11)

p.13

Core Principles of the GIPS standards

› Standardized, industry-wide ethical principles that provide investment firms with guidance on how to calculate and report investment results to prospective clients

› Voluntary and are based on the fundamental principles of full disclosure and fair representation of investment performance results

› Global standardization of composite performance reporting gives investors around the world the additional transparency they need to compare and evaluate managers

p.14

Fundamental Requirements of the GIPS standards

› GIPS compliance is a firm-wide undertaking- must adhere

to all guidance and requirements, there is no partial

compliance

› An individual fund, vehicle or composite cannot be

compliant by itself

› All actual, discretionary, fee paying portfolios must be

included in at least one composite

› The GIPS standards rely on the accuracy and integrity of

input data (security valuations, for example)

p.15

Industry Statistics

p.16

Source: eVestment database as of 6/30/12

0%

10%

20%

30%

40%

50%

60%

70%

80%

Australia Canada Hong Kong US UK Globally

What % of firms claim GIPS compliance by country/region?

Industry Statistics

p.17

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Australia Canada Hong Kong US UK Globally

What % of firms are verified by country/region?


Data represents % of GIPS compliant firms that are independently verified

Industry Statistics

p.18

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< $500 $2,000 $10,000 $25,000 > $25,000

(in $Millions)

What % of firms claim GIPS compliance by AUM?


Industry Statistics

p.19

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

< $500 $2,000 $10,000 $25,000 > $25,000

(in $Millions)

What % of firms are verified by AUM?


Data represents % of GIPS compliant firms that are independently verified

Why Do Firms Comply with the GIPS standards?

p.20

Which of the following options best describe your firm‟s reasons for

claiming GIPS compliance (please check all that apply)?

*Source: eVestment/ACA 2012 Survey “The Value of GIPS® Compliance: 2012 Manager and Consultant Survey”

Who Benefits from the GIPS standards?

• Investors

› Plan sponsors

› High-net-worth investors

› Retail investors

• Investment Managers

› Including equity, fixed income, hedge fund, private equity, and real

estate investment management firms

• Intermediaries

› Consultants

p.21

Benefits to Investment Managers

› Firms recognized for adherence to industry best practice

› Strengthened internal processes and controls; improved

risk management

› Introduces transparency to the performance presentation

and generates an improved view of the track record

› Market has determined that it wishes to embrace the GIPS

standards

p.22

Benefits to Investors

› Enhanced ability to compare performance between firms

and strategies

› Consistency in calculation and presentation of

performance results, such as frequency of valuation,

treatment of large cash flows, and handling of accruals

› Full disclosure of important details on performance data

presented, such as fees, composite construction criteria,

dispersion of returns, etc.

p.23

Benefits of Policies and Procedures

• Comprehensive and detailed Policy & Procedures (P&P)

as required by the GIPS standards:

› Eliminates the „gray areas‟: speeds up process, no discussion,

ensures consistency

› Input data and Calculation methodology are part of P&P: Policies for

Valuation, Pricing, Technology, Market Data

› Update but retain previous details as they describe the past

› Institutional memory; document exceptions and one-off solutions;

maintain „daily‟

› Best training manual

› P&P requested and used by regulators, internal audit,

risk management

p.24

Institutional Consultants: the Drivers of the GIPS standards

81%* of consultants exclude

managers from searches some

or all of the time if they do not

claim GIPS compliance

p.25

*Source: eVestment/ACA 2012 Survey “The Value of GIPS® Compliance: 2012 Manager and Consultant Survey”

What is a GIPS Verification?

› Firm-wide Verification- a process by which an independent

verifier assesses whether:

› the firm has complied with all the composite construction

requirements of the GIPS standards on a firm-wide basis

and

› the firm‟s policies and procedures are designed to

calculate and present performance in compliance with the

GIPS standards

› Verification is not required for firms that claim compliance

with the GIPS standards

› The GIPS standards recommend that firms be verified

p.26

What is a Performance Examination?

› Performance Examination*- a detailed examination of a

specific composite‟s compliant presentation by an

independent verifier

› Entails a more detailed review of a composite‟s

membership, calculations, disclosures, composite

presentation

› A performance examination may be performed

concurrently with the verification, but must not be

conducted without a firm-wide verification

› A performance examination is not required for a firm to be

verified (i.e. a firm-wide verification)

*(formerly known as Level II Verification)

p.27

Common Questions: Fundamentals of Compliance

› Are you compliant with the GIPS standards? (only firms

comply, not “you”)

› What is your compliance status? (there is no status—

either a firm complies or does not comply)

› Is this composite compliant with the GIPS standards?

(only firms comply, not composites)

› Is your firm AIMR-compliant? (incorrect, outdated

reference to investment performance standards)

GIPS Model RFP Template:

http://www.gipsstandards.org/resources/Documents/gips_rfp_factsheet.pdf

p.29


Common Questions: Fundamentals of Compliance

› Are your mutual funds compliant? (only firms comply, not mutual funds)

› Does your performance/risk calculation system/portfolio management system comply with GIPS? (only firms comply, not systems)

› Is this portfolio (or portfolio return) GIPS compliant? (only firms can be GIPS compliant, not individual portfolio returns)

› Please provide your gross-of-fees figure of a similar single account. (only composite returns are allowed to comply with the GIPS standards)

GIPS Model RFP Template: http://www.gipsstandards.org/resources/Documents/gips_rfp_factsheet.pdf

p.30


Common Questions: Verification

› Are you Level I or Level II compliant and/or verified?

(There are no “levels” of compliance and/or verification—a

firm is compliant or not compliant. If the firm is GIPS-

compliant it may or may not choose to be verified)

› Have composites been verified? (Only firms are verified—

however, once the firm is verified they may choose to have

a performance examination of a composite(s))

GIPS Model RFP Template:


p.31


Best Practice RFP Questions

› In an RFP, what questions should I ask about GIPS

compliance to get comfortable with the quality and

accuracy of a firm‟s claim of compliance?

p.32

Best Practice RFP Questions

› Does the firm comply with the GIPS standards?

› Please provide the firm definition used to determine total firm assets and firm-wide GIPS compliance.

› Please provide beginning date of compliance with the GIPS standards.

› Please provide a list of the firms‟ composite descriptions.

› If firm does not comply with the GIPS standards, please explain.

› Has the firm been verified?

› Please identify the period(s) for which verification reports have been issued to the firm.

› Please provide name(s) of verification firm(s).

GIPS Model RFP Template: http://www.gipsstandards.org/resources/Documents/gips_rfp_factsheet.pdf

p.33


Best Practice Database Questions

› Do you have examples of best practices for

language/questions for databases to use for firms filling

out questions about the GIPS standards/composite

performance?

p.34

Best Practice Database Questions

In the firm/general information/compliance section:

› Does the firm claim compliance with the Global Investment Performance Standards (GIPS)?

› If firm does not comply with the GIPS standards, please explain.

› Has the firm received a firm-wide GIPS verification?

› If yes, please list the dates for which the firm has received a firm-wide GIPS verification.

› Please select your verification provider.

In the product/composite section:

› Has this composite received a Performance Examination?

› If yes, please list the dates the Performance Examination covers.

p.35

GIPS Guidance and Resources

› The GIPS standards website: http://www.gipsstandards.org

› The GIPS: http://www.gipsstandards.org/standards/current/Pages/index.aspx

› Guidance Statements: http://www.gipsstandards.org/standards/guidance/Pages/CurrentGuidance.aspx

› GIPS Q&A‟s: http://www.gipsstandards.org/standards/faqs/Pages/index.aspx

› To sign up for the GIPS newsletter, email: [email protected]

p.36

http://www.gipsstandards.org/

http://www.gipsstandards.org/standards/current/Pages/index.aspx

http://www.gipsstandards.org/standards/guidance/Pages/CurrentGuidance.aspx

http://www.gipsstandards.org/standards/faqs/Pages/index.aspx



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