\ Global Investment Performance Standards

Presented By:

Presented By:
CA Atul H. Shukla
caatulhshukla@gmail.com
9 1 9CA8 Atul
2 0 8Shukla,
7 1 8 5caatulhshukla@gmail.com
9/22 26231859
 Overview
GIPS standards are set of standards
developed by CFA Institute, in partnership
with other organizations worldwide

CFA Institute, with corporate headquarters in

Charlottesville, VA, USA is the professional
organization. It owns and administers the GIPS
standards

GIPS standards are a voluntary set of standards

based on the fundamental principles of full
disclosure and fair representation of
performance results

Standards are to be complied by

Investment Management Firms
CA Atul Shukla,
caatulhshukla@gmail.com
 What Parties Do GIPS Apply To?

• GIPS apply directly to all firms that manage investment portfolios and
that wish to market their previous track record in this practice and
gather additional accounts by constructing performance composites.
• Development of a global standard is crucial to all firms, but particularly
to those who may be in direct competition for business with foreign-based
managers, to whom the same standards have not always applied.

CA Atul Shukla,
caatulhshukla@gmail.com
 Why Were Performance Standards Necessary?
• Lack of reporting consistency because of
 Different standards
 Varying Time Periods
 Survivorship Bias
 Representative Portfolio Accounts

"apples-to-apples“ comparison and not "Apples-to-oranges“

• Lack of industry-wide comparability

As the industry of Investment Management has evolved,

number of different methodologies and approaches have
developed to measure and present performance numbers :

CA Atul Shukla,
caatulhshukla@gmail.com
 Why Were Performance Standards Necessary?
• Lack of regulatory guidance
 Self-regulation of the industry

Issues have started to multiply: Time-weighted or asset-

weighted? Discretionary accounts or all accounts? Before or
after fees? Trade date or settlement date? Without any
guiding principles, managers were essentially free to enact
practices of their own choosing.

• GIPS seeks to avoid such inconsistencies by:

 Standardised calculations and reporting
 Uniformity and Comparability

CA Atul Shukla,
caatulhshukla@gmail.com
 Objectives
• Ensure accurate and consistent data

• Obtain worldwide acceptance of a single standard for calculating and presenting

performance

• Promote fair, global competition among investment firms

• Promote investor interests and instill investor confidence

• Promote industry self-regulation on a global basis

CA Atul Shukla,
caatulhshukla@gmail.com
 Advantages of GIPS Standards
• Standardized Investment Performance
 investment management industry have become increasingly global in
nature, so there is need to standardize the calculation and presentation of
investment performance.

• Global Implementation
 One global agency owns and administers the standards, bringing
uniformity and comparability at a global level.

• Global Passport
 practices, regulation, performance measurement, and reporting of
performance vary considerably from country to country. 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.
• Investor Confidence
 assure investors that the firm’s investment performance is complete and
fairly presented.
CA Atul Shukla,
caatulhshukla@gmail.com
 Beneficiaries of 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

CA Atul Shukla,
caatulhshukla@gmail.com
 History of GIPS
• CFA Institute owns and administers the GIPS standards. It was
previously named the Association for Investment Management
and Research (AIMR).
• Today CFA Institute has more than 127,000 members, in
147countries and territories and over 140 member societies.

• AIMR-PPS standards :

 Foundation for the GIPS standards was first laid in 1987, with
the creation of the AIMR Performance Presentation Standards,
voluntary performance guidelines for the North American
investment management industry to provide an ethical
framework for the calculation and presentation of the
investment performance.

CA Atul Shukla,
caatulhshukla@gmail.com
 History of GIPS

• AIMR-PPS standards were one of many sets of country-

specific standards used throughout the world

• Effective January 1, 2006, all country-specific standards

converged to create one standard used globally: the GIPS
standards

• On 1 January 2011, the second revision of the GIPS

standards went into effect. The current edition of the GIPS
standards includes amendments to clarify language and
improve consistency throughout the standards.

CA Atul Shukla,
caatulhshukla@gmail.com
CA Atul Shukla, caatulhshukla@gmail.com
As of April 2016
 Investment Director Verification/
Manager Practitioner
Appointed
by
GIPS Executive
CFA Interpretations Committee Investor/Consultant
Institute

Appointed RIPS-Asia Pac RIPS-Americas Council Chair RIPS-EMEA

by
Country
Sponsors
Chair

Asia
Pacific
RIPS
GIPS Council
EMEA
RIPS

Americas
RIPS
CA Atul Shukla,
caatulhshukla&co@gmail.com
 Vision Statement of GIPS (by CFA)
1. Worldwide acceptance of one standard for the calculation and
presentation of investment performance
2. A format that is accepted as fair to all, and that facilitates
comparability between managers that adopt the standard
3. A format that provides fair representation and full disclosure,
two of the core ethical principles of the CFA Institute
4. Accurate and consistent investment performance data for all
necessary purposes (reporting, recordkeeping, marketing, client
presentations)
5. Promoting fair global competition among investment
management firms regardless of the market
6. Limiting barriers to entry for new investment management firms
7. Fostering the notion that the investment management industry
can be proactive in its self-regulation initiatives while adhering
to the highest ethical principles

CA Atul Shukla,
caatulhshukla@gmail.com
 Implementing a Global Standard
• Self- regulatory nature of GIPS standards necessitates a strong
commitment to ethical integrity.

• Self- regulation also assists regulators in exercising their responsibility

for ensuring the fair disclosure of information within financial markets.

• GIPS Executive Committee encourages regulators to:

 Recognize the benefit of voluntary compliance with standards that
represent global best practices;

 Give consideration to taking enforcement actions against firms that

falsely claim compliance with the GIPS standards; and

 Recognize and encourage independent third- party verification.

CA Atul Shukla,
caatulhshukla@gmail.com
 Implementing a Global Standard – Country Sponsors
• Presence of a local sponsoring organization for investment
performance standards, known as a “country sponsor,” is essential
for effective implementation of the GIPS standards and ongoing
support within a country.

• Country Sponsors are appointed in each country, who report to

global organisation, CFA Institute.

• Country sponsors:
 Promote the GIPS standards locally;
 Provide local market support and input for the GIPS standards;
 Present country- specific issues to GIPS Executive Committee;
 Participate in the governance of the GIPS standards via
membership in the GIPS Council and Regional Investment
Performance Subcommittees.
CA Atul Shukla,
caatulhshukla@gmail.com
 Implementing a Global Standard – Country Sponsors
• Indian country sponsor of GIPS is: Indian Association of
Investment Professionals (IAIP)
• IAIP, established in April 2005, is an association of local
investment professionals, consisting of portfolio
managers, security analysts, investment advisors, and other
financial professionals. As one of the over 140 CFA Institute
member societies, the IAIP connects local members to a global
network of investment professionals.
• The key objectives of IAIP are to:
 Promote ethical and professional standards within the investment industry
in India,
 Facilitate the exchange of information and opinions among people within
the local investment community and beyond,
 Work to further the public’s understanding of the CFA® designation and the
investment industry.

CA Atul Shukla,
caatulhshukla@gmail.com
 GIPS Standards
0 • Fundamentals of Compliance

1 • Input Data

2 • Calculation Methodology

3 • Composite Construction

4 • Disclosure

5 • Presentation and Reporting

6 • Real Estate

7 • Private Equity

• Wrap Fee/Separately Managed Accounts

8
(SMA) Portfolios
CA Atul Shukla, caatulhshukla@gmail.com
 Fundamentals of Compliance
• Comprises of all 4 below:
• firms should • firms should
comply with be verified.
all GIPS
standards,

Compliance Verification

Broader
Information
definition of
to Client
Firm
• firms should • provide each
adopt most client annually,
meaningful specified
definition of information of
the firm CA Atul Shukla, portfolio
caatulhshukla@gmail.com
 Input Data Requirements
Following Input data is required by standards:
• All necessary data for compliant presentation must be captured and
1 maintained.
• Portfolio valuation must be on Fair Value and market based (not based on
2 book value or on cost).
• Monthly valuation must be the calendar month end (i.e. last business day of
3 the month)
• Portfolios must be valued on the day large external cash flows are received. each
4 firm must identify the amount (or percentage of an account) that constitutes a
large cash flow
• Trade date accounting i.e. asset is reflected in an account on the day it was
5 traded, not on settlement date
• Accrual accounting for all fixed-income securities. In other words, if the income
6 has been earned (if the owner has a legally enforceable claim to that income), it
must be included in total asset value
• Beginning and ending valuation dates must be consistent, and must be calendar
7 year-end unless the composite is reported on a non-calendar fiscal year
CA Atul Shukla,
caatulhshukla@gmail.com
 Input Data Recommendations
Following Input data is recommended by standards:

• firms should value portfolios on the date of all external cash flows.
1

• Valuations should be obtained from a qualified independent third party

2

• Accrual accounting should be used for dividends (as of the ex- dividend
3 date).

• firms should accrue investment management fees.

4

CA Atul Shukla,
caatulhshukla@gmail.com
 Calculations Methodology Requirements
Total return method must be used. i.e. It includes income, plus realized gains and
losses, plus unrealized gains and losses

Time-weighted rates of return, geometrically linked to be used

External cash flows, when received, must be treated consistently

Composites must be constructed by asset-weighted individual portfolio returns

using beginning of period values and all external cash flows

Cash (and cash equivalent) returns must be included if there is cash in the
individual account

Returns must be net of actual trading costs. Estimating trading expenses is not
permitted (in determining either gross or net)

firms must calculate portfolio returns at least monthly. And adjust for daily-
weighted external cash flows
CA Atul Shukla, caatulhshukla@gmail.com
 Calculations Methodology Recommendations

Returns should be calculated net of non- reclaimable withholding taxes on

dividends, interest, and capital gains.

Reclaimable withholding taxes should be accrued.

CA Atul Shukla,
caatulhshukla@gmail.com
Any questions?

CA Atul Shukla,
caatulhshukla@gmail.com
C A Atu l H. S h u k l a
caatulhshukla@gmail.com
9 8 CA
2 0Atul
8 7Shukla,
1 8 5 9 caatulhshukla@gmail.com
/ 022-26231859