Overview of GIPS
Why were GIPS Standards created?
In the past it was difficult to meaningfully compare the investment performance data as people followed different reporting procedures and practices.
Some of the misleading practices included:
- Representative accounts: The firms will take the top performing portfolios and use it as a representative of the overall investment results of the firm.
- Survivorship bias: Unsuccessful portfolios are removed, and the firm's average performance is adjusted to remove the data of the dropped portfolios. This helps them portray better performance.
- Varying Time Periods: The firm presents the performance for a selected period during which they produced above-average returns.
All these practices make comparison of the results of different firms difficult.
The GIPS standards were created to make performance measurement among firms fair, comparable, with consistent, standardized calculation and reporting, marketing, and presentation.
GIPS aim to avoid misrepresentation of performance of investment firms and to give full disclosure clients relevant information to evaluate past performance
Who can claim compliance?
Any investment management firm can choose to comply with GIPS standards. Compliance is voluntary, and is not required by legal or regulatory authorities.
Only those investment management firms that actually manage assets can claim compliance with GIPS standards.
GIPS compliance is a firm-wide process and it cannot be achieved on a single product or composite.
Who benefits from compliance?
The GIPS compliance benefits both investment management firms and clients.
GIPS standards are intended to serve prospective and current clients of investment management firms. GIPS standards compliance allows clients to fairly compare investment performance among investment firms and make decisions confidently.
