Understanding the new GIPS® 2020 standards has been added to Bookmarks.
Understanding the new GIPS® 2020 standards
InFocus: A guide to global investment performance standards
The 2020 global investment performance standards (GIPS 2020) were released by the CFA Institute on June 28, 2019, with an effective date of January 1, 2020, replacing the existing GIPS 2010 standards. Investment management (IM) organizations should be aware of key changes, especially in the alternatives and pooled fund space. Compliance will help IM funds compete for new assets, strengthen internal controls and governance processes, and focus on meeting client expectations.
- Top takeaways
- What is GIPS?
- GIPS 2020: What’s new and notable
- Considerations and next steps
What is GIPS?
Developed by the CFA Institute, the voluntary GIPS standards are based on the fundamental principles of full disclosure and fair representation of investment performance results. These standards give investors around the world the additional transparency they need to make an “apples to apples” comparison of fund performance and evaluate investment managers.2 As a result, most investors believe they can place greater confidence and trust in the performance presentations of GIPS-compliant firms.3
GIPS is a de facto requirement in the institutional investment management arena. To claim compliance, firms must demonstrate adherence to comprehensive rules governing input data; calculation methodologies (not just performance, but other required metrics); construction of meaningful composites and disclosures; and presentation and reporting of investment performance results. Under GIPS 2020, there are three different types of GIPS reports, depending on what is being presented: GIPS composite report, GIPS pooled fund report (required for limited distribution pooled funds but recommended for broad distribution pooled funds), and GIPS asset owner report.4
Of the top 100 asset management firms globally, approximately 85 percent claim compliance with GIPS,5 and the number is growing. As of December 31, 2018, 1,711 firms and asset owners claimed compliance with the current GIPS standards, a four percent increase since the prior year-end.6 Compliant firms and asset owners come from 46 markets.7 Complying with the GIPS 2020 standards can provide investment managers with a competitive advantage by helping them compete for new assets globally.8 In addition, maintaining policies and procedures for GIPS compliance typically strengthens internal controls and governance processes. This often helps IM firms focus more on client expectations and strategic fit during due diligence reviews, rather than performance data integrity.9
GIPS 2020 aims to streamline the standards across multiple asset classes; acknowledge other reporting practices that may be better suited for firms (i.e., composite reporting versus pooled fund reporting); and better address the adoption and applicability of GIPS to asset owners. Here is what’s new and notable in the updated standards:
Considerations and next steps
The GIPS standards are a de facto requirement in the institutional IM sector; those firms that have not yet complied—especially in the alternatives and pooled fund space—have the opportunity to do so with the onset of GIPS 2020. Although GIPS compliance is a voluntary standard, it is acknowledged and expected by many investors. Since planning and marshalling resources may take significant time prior to implementation, IM firms should consider starting now to prevent having to play catch-up.
If your IM organization currently is GIPS-compliant and you want to learn more about the updated standards and suggested steps you can take to maintain compliance—or if you are interested in becoming GIPS-compliant—we should talk.
Staying on top of new financial services industry trends, emerging technologies, and changing regulations isn’t easy—it’s not enough to rely on the headlines to understand the complete picture. Our InFocus series takes a deeper dive into the issues that affect financial services organizations and gives you the insights needed to make more informed decisions.
InFocus: Financial services trendsExplore more
1 “GIPS® is a registered trademark of CFA Institute. CFA Institute has not been involved in the preparation or review of this report/advertisement,” https://www.gipsstandards.org/about/policies/Pages/index.aspx.
3 GIPS® 20/20: The way forward: Analyzing industry feedback on the performance standards, Deloitte Center for Financial Services, 2018, https://www2.deloitte.com/us/en/pages/financial-services/articles/global-investment-performance-standards-compliance.html.
4 “The 2020 GIPS Standards: The Top Changes You Need to Know,” ACA Compliance Group, July 1, 2019, https://www.acacompliancegroup.com/blog/2020-gips-standards-top-changes-you-need-know, accessed August 9, 2019.
5 “Out of Top 100 Asset Management Firms Globally, 85 Claim GIPS Compliance,” Market Integrity Insights, CFA Institute, February 6, 2017, https://blogs.cfainstitute.org/marketintegrity/2017/02/06/out-of-top-100-asset-management-firms-globally-85-claim-gips-compliance/.
6 GIPS Standards Newsletter, CFA Institute, February 2019, https://www.gipsstandards.org/news/Documents/february2019.pdf.
8 Brenda Di Leo and Rich Doyle, “Global Investment Performance Standards,” Deloitte, 2017.
9 GIPS® 20/20: The way forward: Analyzing industry feedback on the performance standards, Deloitte Center for Financial Services, 2018, https://www2.deloitte.com/us/en/pages/financial-services/articles/global-investment-performance-standards-compliance.html.
10 https://www.cfainstitute.org/en/ethics/codes/gips-standards/firms, accessed July 24, 2019.
InFocus: Regulatory proposals impact the BDC market
InFocus: Collective intelligence investing creates new rewards and risks