Performance 32

Global Investment PerformanceStandards (GIPS®), known as

late 90’s, GIPS standards havebeen completely revised bythe CFA Institute and adaptedto consider, among otherthings, the rise of alternative

also provided the opportunityto harmoniously integrate

recommendations issued over

GIPS standards wereintroduced 20 years ago (andalready reviewed in 2010) to

meet the growing need forinstitutional investors, includingAmerican pension funds, tobe able to compare variousinvestment management

performance calculation,GIPS standards enablehomogeneous investmentperformance presentations,requiring exhaustiveness in

the chosen perimeter (the

of investment managementcapability and/or asset classes

Today, over 1,700 investment

with an increasing proportion

GLOBAL INVESTMENT PERFORMANCE STANDARDS

(GIPS®) 2020A NEW IMPETUS FOR GIPS STANDARDS

YOA N CH A Z A L P A R T N E R D E L O I T T E

OPHÉLIE PE Y POUX S E N I O R M A N A G E R

D E L O I T T E

J E A N - FR A NÇOIS BOUILLY

F R A N C E ’ S G I P S ® C O M M I T T E E

GIPS® is a registered trademark owned by CFA Institute

Performance 32

The novelty of the GIPS 2020

reading of the standards thanks to the publication of three separate handbooks: for

institutional investors (“asset

Thus, emphasis has been placed on something new from the focus of recent years: the use of the GIPS standards by institutional investors for thepresentation (and thereforethe calculation) of their own

asset owners already requestapplication of GIPS standardsfrom investment management

they can easily and exhaustivelystudy and compare their

The revision of GIPS standardsfollows numerous discussions

adjustments implemented

need to facilitate the adoption

of GIPS standards by bothtraditional and alternativeinvestment management

and real estate investment

Although the GIPS standardshaving been internationalbest practice in terms ofperformance calculationand reporting for the pasttwo decades, GIPS 2020represents a mini-revolution inthe investment management

participants in the last annualCFA Institute’s GIPS Conferencein September 2019 is a primeexample of the continued

This article provides the keypoints for understanding thechanges made in the 2020

TO S TA RT, A FE W R EMINDER S CONCER NING GIPS S TA NDA R DSBy establishing standardizedrequirements for the

calculation and presentation ofinvestment performance, GIPSstandards enable:

• For asset managers:competition on an equalfooting on all markets

• For asset owners: acomparison of the pastperformance of assetmanagers

• For all stakeholders: a sincereand fair presentation of theperformance of the invested

In the absence of such astandard, comparing theinvestment performance ofmultiple asset managers would

In addition, asset managerscan make decisions that resultin intentional or unintentionalmisstatements in investmentperformance reporting and/or

examples:

• Selective presentation ofinvestment periods and/orportfolios

• Incorrect aggregation ofportfolios whose investmentstrategies have nothing incommon

• Use of an inappropriatecalculation methodologyin order to overestimateinvestment performance

• Use of a book value that doesnot represent the fair marketvalue

• Reference to a benchmark that is not representative of

GIPS standards are a set of rules based on the fundamental principles of full disclosure and fair presentation

Asset managers that comply

customers and prospects the opportunity to fairly assess

GIPS® is a registered trademark owned by CFA Institute

Performance 32

A LE X ICON OF K E Y CONCEP T SFirm:

or division presented to clients or prospects as a separate

Portfolio: An individually managed group of investments that may be:

•

• A pooled fund, whose ownership interests may be held by

Composite: An aggregation of one or more portfolios that are managed according to a similar investment mandate, objective,

Wrap fee portfolio: A portfolio for which the sponsor charges investment management services through a bundled fee that is typically all-inclusive, asset-based, and includes a combination of investment management fees, transaction costs not separately

Carve-out: A portion of a portfolio that is, by itself, representative of a distinct investment strategy, typically used to create a track record for a narrower mandate from a

Overlay strategy: A strategy in which the management of a certain aspect of an investment strategy is carried out separately from the underlying portfolio, typically designed either to limit

Money-weighted return:

Time-weighted return:

TIPS FOR R E A DING GIPS 2020

• There are no longer separatesections per asset class forreal estate, private equity,and wrap fee portfolios

• Real estate and private equityare now part of a largercategory, called “private

• Each section includes

asset class or type of asset(for example, overlays,carve-outs, wrap fees, private

•application of the provisionsare now mentioned at thebottom of the page

•

GIPS FOR FIR MS: M AIN NE W FE ATUR ES , CL A RIFIC ATIONS , A ND/OR DE V ELOPMENT S

• Firms now have a maximumof one year to update theirGIPS reports at the end of the

most recent period, when no

• Composites vs. pooledfunds:– Firms must create

composites for strategiesthat are managed orintended to be marketedin the form of segregatedaccounts

– All discretionary segregatedaccounts payingmanagement fees mustbe included in at least onecomposite

– All discretionary pooledfunds paying managementfees must be included in allcomposites for which they

– Firms are not obliged tocreate a composite thatincludes only one or morepooled funds, if the strategyof this fund(s) is notintended to be marketedin the form of segregatedaccounts

– Firms may close out

composites that include only one or more pooled funds, if the strategy of that fund(s) is not distributed like the strategy of a

• Firms must classify and listeach of their portfolios in oneof the following categories:– Segregated account: A

portfolio owned by a singleclient

– Broad distribution pooledfund: A pooled fundthat is regulated undera framework that wouldpermit the general publicto purchase or hold thepooled fund’s shares and

one-on-one presentations– Limited distribution

pooled fund: Any pooledfund that is not a broad

• Some changes interminology have beenmade:–

by “transaction costs”

Furthermore, if these are not known, they can now be estimated to calculate the net performance (with some required disclaimers)

– “Wrap fees/separately

renamed “wrap feeportfolios”

–are replaced by “GIPSreports”two types of GIPS reports

reports and GIPS pooledfund reports (required forlimited distribution pooledfunds and recommendedfor broad distribution

• Carve-outs: GIPS 2020

of cash management forcarve-outs by reintroducingthe concept of syntheticcash allocation (applicableretroactively, on the whole

out with independent cash

GIPS® is a registered trademark owned by CFA Institute

Performance 32

management remains the

a standalone portfolio managed according to the same strategy as the carve-out(s) with a synthetic allocation of cash: –composite that includesonly standalone portfolio(s)

– The GIPS Composite Reportof the composite thatincludes the carve-out(s)with a synthetic allocationof cash must also present the performances and theoutstanding amounts of thecomposite that include only

• Money-weighted returns: Firms may present money-weighted returns only if the

portfolios in the compositeor pooled fund and theportfolios in the compositehave or the pooled fund hasat least one of the followingcharacteristics: – Closed-end – Fixed life – Fixed commitment – Illiquid investments as

Other developments

that present money-

• Overlay strategies: Moredetails are provided on themethods for calculating and

Also, for overlay strategy

choose between presenting

• Firms’ and composites’assets: – Uncalled committed capitaland advisory-only assetsmust not be included in

to present them separatelyor combined with the

latter in the strict senseis presented and that the comments and detailsnecessary for the goodunderstanding of the usersare well included

– It is no longer possible to present the composite’stotal assets as a percentage

assets are also presented, and this for each period-

• Real estate: – Investments in real estatein open-end funds must

valuation at least every 12months

– Investments in real estatethat are not in open-endfunds must obtain anexternal valuation at leastevery 12 months, unlessthe contract with theclient stipulates another

an external valuation atleast every 36 months or

the client’s contract if it isless than 36 months

– Investments in real estatemust be accounted foraccording to the fair valueprinciple and the annual

must be audited by anindependent accounting

• GIPS advertising: Thereare three options available

strategy: – Prepare a GIPSAdvertisement on acomposite, a limited distribution pooled fund, ora broad distribution pooledfund by following the GIPSAdvertising Guidelines

– Prepare a GIPSAdvertisement and includea GIPS report

– Do not mention GIPS

The GIPS Advertising Guidelines have beenbroadly expanded in GIPS

remember are that: – The returns of thecomposites/pooled fundspresented in the GIPSAdvertisement must be derived from the returnsincluded in the GIPSreports

–depending on the type ofreturns presented in the GIPS Composite Report(money-weighted returns

– The concept of broadly distributed pooled fund is now included in the GIPS Advertising Guidelines andreplaces the obligations

GIPS® is a registered trademark owned by CFA Institute

Performance 32

previously included in the Guidance Statement on Broadly Distributed Pooled

• Sunset provision: Somedisclaimers must be includedfor a minimum of one yearand can now be withdrawn

the disclaimer is no longerrelevant for interpreting theperformances presented,such as: –a prospective client orinvestor interpreting aGIPS report

– Changes in the name of acomposite or a pooled fund

– Retroactive change of a

benchmark – Corrections of material misstatements

– Change in the type ofreturns presented (money-

EFFEC TIV E DATE

• GIPS Reports that includeperformance for periodsending on or after 31December 2020 must beprepared in accordancewith GIPS 2020

• GIPS Reports thatinclude performance for

periods ending before 31 December 2020 (for

may still be prepared in accordance with the 2010 edition of the GIPS

• Firms can choose to adoptGIPS 2020 early, but only full

nocherry picking due to early

Some new GIPS 2020 provisions are subject to interpretation, so they have been gradually explained through communications from the CFA Institute since the

Technical aspects of GIPS standards are important to consider, but their adoption must come from a desire for openness and transparency. If integrated

reporting process, their implementation is generally not a source of concern or does it bear excessively high costs.

on the proposed range as well its strengths and weaknesses.Reliable technology and data are essential for the calculation and presentation of GIPS compliant investment performances, but this must always be the case regardless of the size of the investment management

requests from clients and

other third parties.Compliance with GIPS standards is essential for an

its services, but also for an asset owner that must answer for its investment management, including and especially when it is delegated to third party managers, vis-à-vis the stakeholders who are their principal concern and their representatives within an oversight body..

TO GO FURTHER … USEFUL L INK S : 2020 GIPS standards:

•

org/en/ethics/codes/gips-

•

org/en/ethics/codes/gips-

• For asset owners:

org/en/ethics/codes/gips-standards/asset-owners

Presentations from the 23rd Annual Conference on GIPS standards:

• 2020 GIPS standardsupdate:

video/gips2019/detail/video/6085332667001/gips-2020-update?autoStart=true

• Topics for high net worth

video/gips2019/detail/video/6085332667001/gips-2020-update?autoStart=true

• Alternative investments:

video/gips2019/detail/

GIPS® is a registered trademark owned by CFA Institute

CONCLUSION

Performance 32

TO THE POINT

• GIPS standards were introduced20 years ago to meetinstitutional investors’ growingneeds to be able to compare various investment management

• The adjustments implemented

need to facilitate the adoptionof GIPS standards by both traditional and alternative

including private equity and real

• Technical aspects of GIPSstandards are important toconsider, but their adoption must come from a desire for

integrated into a reliable and

implementation is generally nota source of concern or does it

• Compliance with GIPS standardsis essential for an asset manager

also for an asset owner that

must answer for its investment management, including and especially when it is delegated to third party managers, vis-àvis the stakeholders who are their principal concern and their representatives within an

GIPS® is a registered trademark owned by CFA Institute