2015, Study Session # 1, Reading # 3

“INTRODUCTION TO THE GLOBAL INVESTMENT

PERFORMANCE STANDARDS (GIPS®)”

3. a Historical Misleading Reporting Procedures

Representative Accounts Survivorship Bias Varying Time Periods

Top-performing portfolio Excluding weak Showing excellent

representative of firm’s performance accounts. performance of selected
overall investment results. time periods.

GIPS ⇒ set of ethical principles (standardized, industry-

wide & voluntarily followed by firms).

Clients have more confidence in reported performance &
can easily compare investment firms’ performances.

3. b

Composite ⇒ grouping of individual discretionary portfolios representing

a similar investment strategy, objective or mandate.

Provide information about investment style results & various types of
securities being managed.

Each portfolio is assigned to a composite before its performance is known
(no intentional superior composite creation).

3. c Verification

Requirements Recommendations

Performed by independent third party
Firms are encouraged to pursue

(firm-wide basis).

Verifier must attest;

Firm has compiled with composite
construction requirements.

Firm’s policies and procedures are
designed to present and calculate
performance in accordance with the
GIPS standards.
independent verification.

Disclosure language;

“[insert name of firm] has been verified
for the periods [insert dates] by [name of
verifier]. A copy of the verification report
is available upon request.”

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