Reading 5: GIPS In Depth

Historical Performance Record: The firm must present an addition year of performance each year, building up to a minimum of __ years

10 years of GIPS compliant performance

Example: What is the minimum period of compliant performance that a 12 year old firm must present to comply with the GIPS standards?

10 years. After a firm presents a minimum of 5 years of GIPS compliant performance, the firm must present an addition year of performance for each years since its inception., building up to the min of 10 years. So accordingly, a firm in existence for 12 years must present a min. 10 years of compliant performance to comply with the GIPS standards.

T or F: Changes in the firm organization must lead to change in historical compositite performance.

F. According to provision 0.A.15, changes in the firm's organization must NOT lead to alteration of historical compositite performance.

T or F: Firms CAN link non GIPS compliant performance for periods beginning on or after January 1 2000 to their GIPS compliant performance.

F. CANNOT.

T or F: In calculation methodology of the GIPS Standards, achieving comparability among investment management firms' performance presentations does NOT require uniformity in methods used to calculate returns.

F. Requires UNIFORMITY. The GIPS standards mandate the use of certain calculation methodologies to facilitate comparability.

Ex) To claim compliance with the GIPS standards, a firm is required to: a) adhere to certain calculation methodologies b) conduct an independent 3rd party verification ff its claim to compliance. c) perform periodic internal compliance checks of its investment process.

B & C are encouraged and are best practices but NOT required. A is correct.

In Disclosure of the GIPS Standard, what is the one of the essential disclosures for every firm?

Claim of compliance

Historical Performance Record: What is the minimum amt of years an investment performance must initially present? If the firm or composite has been in existence less than 5 years, what is the protocol?

MINIMUM of 5 years that is compliant with GIPS standards. If less than 5, firm must present performance since firm's inception or the composite inception date.

Why is a GIPS needed?

Standardized Investment Performance - Growth and number of investment entities, globalization have made the financial markets and investment management industry more competitive in nature. Global Passport - By adhering to a global standard, firms in countries with minimal or no investment performance standards will be able to compete for business on an equal footing with firms from countries with more developed standards. Investor Confidence - Help assure investors that the firm's investment performance is complete and fairly presented.

0 - Fundamentals of Compliance: What the two most important issues that a firm must consider when becoming compliant with the GIPS standards?

The Definition of the firm and the firm's definition of discretion. The definition is the foundation for firm wide compliance and creates defined boundaries whereby total firm assets can be determined. The firm's definition of discretion establishes criteria to judge which portfolios must be included in a composite and is based on the firm's ability to implement its investment strategy.

Goals of the GIPS Executive Committee

To establish investment industry best practices for calculating and presenting investment performance that promote investor interests and instill investor confidence. Obtain worldwide acceptance of a single standard for the calculation and presentation of investment performance based on the principles of fair representation and full disclosure. promote the use of accurate and consistent investment performance data Encourage fair, global competition among investment firms without creating barriers to entry, and foster the notion of industry "self-regulation: on a global basis

Adherence to the GIPS standards is reinforced by:

a strong commitment to ethical integrity in fair representation and full disclosure. Given the voluntary, "self-regulatory" nature of the GIPS standards, adherence to the standards requires firms to be strongly committed to ethical integrity in reporting of performance that upholds the principles of fair representation and full disclosure.