The CFA Institute recently released its Guidance Statement on the Application of the Global Investment Performance Standards (GIPS) Standards to Asset Owners, which becomes effective on January 1, 2015. The Guidance Statement addresses the differences between the asset owner and the traditional investment management firm models and offers clarification for asset owners seeking to apply the GIPS standards.
The new GIPS Guidance Statement includes important areas to consider for compliance with GIPS including, among others:
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- If the asset owner manages one fund, one composite is required
- Multiple funds with different investment mandates require all funds to be included together in the same composite or be included in individual composites and presented to the relevant oversight board separately
- An asset owner can choose to create additional composites that represent a particular strategy or asset class
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- Net-of-fees return is the net of all costs associated with the management of the assets and required to be presented
- Full gross-of-fees return must only be presented as supplemental information for the deduction of only transaction costs
- Gross-of-fees return and net-of-external-costs-only return are optional returns that reflect the reduction of fees and costs for investment management.
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- Firms are required to make every reasonable effort to provide a compliant presentation to all prospective clients
- If asset owners do not have prospective clients, they must provide a compliant presentation to those who have direct oversight responsibility for total fund assets, such as a board of trustees
- If additional composites have been created, the compliant presentations must also be presented
- Asset owners may include compliant presentations on their websites, in their annual reports, in their newsletters, or in other distributed materials, but must comply with the GIPS Advertising.
The Guidance Statement also addresses other topics, such as recordkeeping and error correction, cash, disclosure of composite description, and benchmarks. These GIPS standards should be adopted as they provide investors with assurance that the asset owner practices the principles of fair representation and full disclosure, a step toward good governance.
For more information on this and other related subjects, please contact us at (619) 278-0020 to schedule a consultation.