2017 Level I Exam

The GIPS Standards

GLOBAL INVESTMENT PERFORMANCE STANDARDS

Why is a Global Investment Performance Standard Needed?
1. Standardized Investment Performance

The globalization of investment management increases the need for a standardized

investment reporting process.

2. Global Passport

Since regulation and performance reporting varies tremendously by country, established

standards will aid asset managers and clients to evaluate performance.

3. Investor Confidence

Firms that follow standards are more likely to have performance information that is trusted
by clients.

Objectives
There are several goals of the GIPS Executive Committee. They want to establish the best
practice to calculate and present investment performance, obtain worldwide acceptance of single
standard based on fair representation and full disclosure, promote use of accurate and consistent
investment performance data, and encourage fair global competition and industry self-regulation.

Overview
GIPS standards focus on fair representation and full disclosure of investment performance. Firms
should not just strive to meet minimum standards of GIPS. Firms must include all discretionary,
fee-paying accounts in at least one composite. The input data must be scrutinized. GIPS
standards have historically focused on returns, but now also include risk measures.

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Historical Performance Record

The firm must initially present the greater of five years or the number of years since the
composite inception date. Additional years must be added up to 10 years. Firms can link non-
GIPS-compliant performance for periods prior to 1/1/2000.

Compliance
Firms are encouraged to have internal controls to confirm compliance, but may use an
independent third party for verification.

Implementing a Global Standard

A local sponsoring organization is essential to support GIPS standards within a country. The
sponsor can ensure country interests are taken into account. Self-regulation requires strong
ethics. Regulators should recognize benefits of voluntary compliance, take enforcement action
against firms that falsely claim compliance, and encourage third-party verification. Firms must
comply with laws rather than GIPS standards if the two conflict.

PROVISIONS OF THE GLOBAL INVESTMENT PERFORMANCE

STANDARDS
0. Fundamentals of Compliance

The firm must be defined, provide compliant presentations to all prospective clients, follow
laws and regulations, and not present false or misleading information. The firm definition
determines the assets to be considered. The firm's definition of discretion determines which
portfolios are included in a composite.

GIPS standards must be applied on a firm-wide basis with documented procedures. The firm
cannot state the calculation methodology is in compliance with GIPS standards. Terminated
composites must be included in reports for at least five years. Total firm assets include all
fee-paying and non-fee-paying portfolios.

Third-party verification is recommended. It is also recommended existing clients receive a

compliant presentation of relevant composites.

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1. Input Data

Consistency of input data is paramount.

2. Calculation Methodology

Certain calculation methodologies are mandated by GIPS standards.

3. Composite Construction

A composite is an aggregation of one or more portfolios with similar investment mandates.

The composite return is the asset-weighted average of the performance.

4. Disclosure

Disclosure allows the firm to provide context to the performance. Some disclosures are
required, one of which is the claim of compliance. The firm must also indicate if it has or has
not been verified.

5. Presentation and Reporting

GIPS standards include reporting requirements, but the firm must realize the requirements
could never cover all situations.

6. Real Estate

Real estate is treated separately and some of the provisions in Sections 0-5 above will not
apply.

7. Private Equity

Private equity is also treated separately and some of the provisions in Sections 0-5 above will
not apply.

8. Wrap Fee / Separately Managed Account (SMA) Portfolios

This section supplements Sections 0-5. Provisions in Sections 0-5 that do not apply are noted.

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GIPS GLOSSARY
You should read through the terms in this glossary, but memorizing all the terms is not necessary
for the exam.

APPENDIX 4A: SAMPLE COMPLIANT PRESENTATIONS

Reading these samples will help solidify your understanding of GIPS standards. However, keep
in mind this is a limited number of samples.

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