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\Global Investment Performance Standards

Presented By: P r e s e n t e d B y : C
Presented By:
P r e s e n t e d
B y :
C A
At u l
H .
S h u k l a
c a a t u l h s h u k l a @ g m a i l . c o m
9 1
9 8 2 0 8 7 1 8 5 9 / 2 2
2 6 2 3 1 8 5 9
CA Atul Shukla,
caatulhshukla@gmail.com

Overview

GIPS standards are set of standards developed by CFA Institute, in partnership with other organizations
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

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

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

income, hedge fund, private equity, and real estate investment management firms CA Atul Shukla, caatulhshukla@gmail.com

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
As of April 2016

As of April 2016

Director

Director Investment Manager Verification/ Practitioner Appointed by CFA Institute GIPS Executive Committee

Investment

Manager

Verification/

Practitioner

Director Investment Manager Verification/ Practitioner Appointed by CFA Institute GIPS Executive Committee

Appointed

by

CFA

Institute

Verification/ Practitioner Appointed by CFA Institute GIPS Executive Committee Interpretations Investor/Consultant

GIPS Executive Committee

Appointed by CFA Institute GIPS Executive Committee Interpretations Investor/Consultant RIPS-Asia Pac
Appointed by CFA Institute GIPS Executive Committee Interpretations Investor/Consultant RIPS-Asia Pac

Interpretations

by CFA Institute GIPS Executive Committee Interpretations Investor/Consultant RIPS-Asia Pac RIPS-Americas Council
by CFA Institute GIPS Executive Committee Interpretations Investor/Consultant RIPS-Asia Pac RIPS-Americas Council

Investor/Consultant

GIPS Executive Committee Interpretations Investor/Consultant RIPS-Asia Pac RIPS-Americas Council Chair RIPS-EMEA
GIPS Executive Committee Interpretations Investor/Consultant RIPS-Asia Pac RIPS-Americas Council Chair RIPS-EMEA

RIPS-Asia Pac

RIPS-Americas

Council Chair

RIPS-EMEA

Appointed

by Country Sponsors Chair Asia Pacific RIPS GIPS Council EMEA RIPS Americas RIPS CA Atul
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:

Investment Professionals (IAIP)

Indian Association of

IAIP, established in April 2005, is an association of local

investment

managers, security analysts, investment advisors, and other

professionals, consisting of portfolio

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 •
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
8
• Wrap Fee/Separately Managed Accounts
(SMA) Portfolios
CA Atul Shukla,
caatulhshukla@gmail.com

Fundamentals of Compliance

Comprises of all 4 below:

• firms should comply with all GIPS standards, • firms should be verified. Compliance Verification
• firms should
comply with
all GIPS
standards,
• firms should
be verified.
Compliance
Verification
Broader Information definition of Firm to Client • • firms should adopt most meaningful definition
Broader
Information
definition of
Firm
to Client
• firms should
adopt most
meaningful
definition of
the firm
CA Atul Shukla,
caatulhshukla@gmail.com

provide each

client annually, specified

information of

portfolio

Input Data Requirements

Following Input data is required by standards:

• All necessary data for compliant presentation must be captured and 1 maintained. • Portfolio
• 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 •
• 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,
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
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?

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

CA Atul Shukla, caatulhshukla@gmail.com

C A Atu l H. Sh u k l a c a a t u
C A
Atu l
H.
Sh u k l a
c a a t u l h s h u k l a @ g m a i l . c o m
9820871859/
022 - 26231859
CA Atul Shukla,
caatulhshukla@gmail.com