The Global Investment Performance standards ( GIPS)


The IFRS, IPSAS and ISA provide frameworks when it comes to financial reporting, public sector accounting and assurance & auditing respectively. For investment performance, the GIPS provide an appropriate framework. The Global Investment Performance Standards (GIPS) are a set of voluntary ethical standards for calculating and presenting historical investment performance underpinned by fair representation and full disclosure. This brief overview is meant to provide some high lights about the GIPS.

The foundation for the current version was set in 1987 when the Association for Investment Management and Research (AIMR) came up with a set of performance presentation standards (AIMR PPS).There have been several reviews, including 1999 when they transitioned to the AIMR GIPS.  Further revision were incorporated in 2005. The AIMR changed to the CFA Institute. Subsequent revisions started in 2008 leading to the 2010 Edition of the GIPS, which was issued in 2011. The 2010 Edition of GIPS have an effective date of 1st January 2011 and include specific provisions for risk measurement.

Firms that decide to comply  with the GIPS cannot claim partial compliance rather they must comply with all requirements of the GIPS standards, including any updates, Guidance Statements, interpretations, Questions & Answers (Q&As), and clarifications published by CFA Institute and the GIPS Executive Committee. The whole body of the GIPS is available on the GIPS website ( ) as well as in the GIPS Handbook. The GIPS do not address every aspect of performance measurement or cover unique characteristics of each asset class but are expected to evolve.

As part of the GIPS development process the CFA Institute works with the GIPS council and the GIPS executive Committee. There are Industry Associations in several major financial jurisdictions that after being subjected to a formal review, are part of the GIPS council.  The main objectives of the GIPS council are to;

i. Promote the GIPS standards locally;

ii. Provide local market support and input for the GIPS standards;

iii. Present country-specific issues to the GIPS Executive Committee; andiv. Participate in the governance of the GIPS standards via membership in the GIPS Council and Regional Investment Performance Subcommittees.

The GIPS Executive Committee operates as an executive arm of the CFA Institute with the objectives of:

i. Establishing investment industry best practices for  calculating and presenting investment performance, hence promoting investor interests and instilling investor confidence;

ii. Drive towards worldwide acceptance of a single standard for calculating and presenting investment performance (fair representation and full disclosure);

iii. Promoting the use of accurate and consistent investment performance data;iv. Encouraging  fair, global competition among investment firms without creating barriers to entry; ( level playing field)

v. Fostering a notion of “self-regulation”, globally.

As a result of various development over the years the GIPS have moved from being a set of esoteric standards to being a main stream part of investment profession. For instance in a survey carried out in 2014 ( indicated that 74% of the world’s largest 100 Asset management firms claim GIPS compliance, representing $46Trillion of the global US$ 78Trillion in Assets Under Management. The report goes on to show that 82% of firms claiming compliance receive a verification of GIPS compliance.  Two thirds of the investment consulting firms exclude Asset management firms that do not claim compliance with the GIPS standards as part of the due diligence process.  Moreover the report observed that more than 60% of consultants/investors believe pension funds, foundations, endowments and other asset owners will claim compliance with the GIPS standards when new GIPS guidance is released for these entities. The huge majority of asset management firms believe that consultants/investors will require hedge fund managers to comply with the GIPS standards. Hedge funds are known as privately pooled investment vehicles that use leverage.  They are much less regulated than retail investment products for instance.We review the major requirements and recommendations of the GIPS.

Fundamentals of Compliance

Some of the fundamental requirements are:

i. Firms must take necessary steps before claiming compliance.

ii. Firms must subject themselves to periodic checks to ensure continued compliance.

iii. Firms can only claim verification when an actual verification report is issued.

iv. Independent 3rd party verification as well as composite testing are recommended options.

v. Compliance should be all encompassing. All composites reported, including those terminated in last 5 yrs. All discretionary fee paying portfolios including those that pay no, fee to be included in at least one composite. The firm must define discretion.

vi. Firm definition should cover what is held out as a distinct business entity.

vii. The reorganization of a firm should not be used to alter asset composition.

viii. Include a 3 year measure of internal dispersion.

This is to discourage casual claims of compliance and partial compliance. In addition a firm is defined to include all geographical offices operating under the same brand name. It is recommended that a GIPS compliant presentation be made available to each client on an annual basis. It is also recommended that firms should take the broadest definition of the entity. Firms are further encouraged to subject themselves to compliance verification, composite testing and to comply with other recommendations within the GIPS.


i. A requirement to maintain the data supporting the GIPS presentations.

ii. Adherence to the Fair Value & GIPS valuation principles

iii. Portfolios to must be valued every month for periods starting January 2001 and at the date of any large cash flows for periods starting January 2010.

iv. The firm must use consistent beginning and end dates for annual reporting periods starting after 1st January 2006.

v. Firms must use trade date accounting from 1 January 2005

vi. Accruals for interest income

vii. Calendar month end or last business day in month Valuation for periods starting 1st January 2010.

For input data there is a recommendation for portfolios to be valued on the date of all external cash flows and for valuations to be obtained from a qualified independent 3rd party. There are further recommendations to use accrual accounting for dividends and investment management fees.

Calculation Methodology 

The calculation methodology should be subjected to the following;

i. Calculate total returns (not partial returns), and report the after expenses return.

ii. Time weighted geometrically linked each monthly (for periods starting 1st January 2001), or when there is any external cash flow (for periods starting 1st January 2005). An external cashflow is an addition to or a withdrawal from portfolio.

iii. Include return on cash allocation (possibly because in cases where the return to the cash portion of a portfolio is less than the return on other assets there is a temptation to exclude cash and the relevant return, since it could exert a performance drag on the rest of the investment portfolio.)

iv. Specific provisions where actual fees cannot be identified or segregated from a bundle fee.v. Returns must be asset weighted on a quarterly basis for periods starting 1st January 2006 and on a monthly basis for periods starting 1st January 2010.

vi. Calculations to be weighted using beginning of period values at the time of any external cash flows.

It is recommended that Returns should be reported net of withholding tax reclaimable (which should be accrued) and that the asset weighting of returns should be monthly basis even for periods before 1st January 2010.

Composite Construction 

A Performance composite is a set of portfolios with a similar mandate, strategy, or objective. The GIPS impose requirements on composite construction including the following:

i. All fee paying discretionary portfolios must be included in at least one  composite

ii. Composites should be constituted of actual assets only. (This means that simulated portfolios have no place in the GIPS compliant reports).

iii. Each composite must be defined either by investment mandate, objective or strategy.

iv. As new portfolios come under the remit of the firm, they must be included in relevant composite(s) reasonably soon.

v. As old portfolios are terminated, their respective performance is required to remain in historical composite performance.

vi. The GIPS stipulates requirements which must be satisfied before a switching portfolios among composites is effected.

vii. The firm is required to explicitly state the minimum asset levels, for inclusion into a composite.

viii. Each composite carve out (subset of a portfolio) ought to have its own cash balance reported with it.

ix. Prior definition of “Significant cash flow” if used as criteria for removing portfolios from composite

It is recommended that a firm establishes a client’s eligibility before presenting compliant composites to them as part of the sales process. This is probably meant to minimise the possibility of miss-selling products. Further it recommended to establish temporary new accounts to manage the effect of significant cash flows.


There are several requirements around disclosure including:

i. A prescribed compliance template to be used which has options for whether the firm has been verified or the composites have been tested.

ii. Prescription for the firm definition, composite description, benchmark description

iii. Gross/ net of fee, other fees & disclosure.

iv. Currency, internal measure of dispersion, composite creation dates, fee schedule.

v. Policies for calculation methodologies and composite description schedule.

vi. Presence, use and extent of derivatives and short positions, if material.

vii. Any re-definition of “the firm”, changes to name and redefinition of a composite.

viii. Significant events to help a client interpret the compliant presentation.

ix. Minimum asset level for a portfolio to be included in a composite.

x. Material treatment of Withholding Taxes.

xi. Any conflict  between GIPS & laws / regulations

xii. Policy for allocating cash to carve out

xiii. Types of fees in a bundle fee arrangement.xiv. Use of sub advisor & timing of such use, for periods starting 1st January 2006.

xv. If any portfolio were not valued at calendar month end for periods ending before 1st January 2010.

xvi. For periods starting after 1st January 2011, the use of subjective unobservable inputs in valuation.

xvii. Material differences between sources of valuation and exchange rate information (Composite Vs benchmark)

xviii. If no appropriate benchmark for the composite exists, explain.

xix. Explain and disclose date of, description of, and reason for any change of benchmark.

xx. Disclose the components, weights, and re-balancing process of custom benchmarks.

xxi. Definition of significant cash flows.

xxii. Three-year annualized ex-post standard deviation for the composite and benchmark.

xxiii. Provide an explanation if 3 Year standard deviation is unavailable or is deemed inappropriate or irrelevant as a measure of internal dispersion.

xxiv. Disclose if the performance from a past firm or affiliation is linked to the performance of the firm.

The Recommendations include specific mention and explanation in clear language about;

i. Any material changes to valuation & calculation policies and/or methodologies,

ii. Any material differences between benchmark and the composite’s investment mandate, objective, or strategy.

iii. The Key assumptions used to value portfolio investments.iv. Disclose multiple firms, if any

v. To also disclose the use of subjective unobservable inputs for valuing portfolio investments before 1st January 2011, (as described in the GIPS Valuation Principles) if material to the composite.

vi. For period ending before 1st January 2006, the use of a sub-advisor and the periods, if any.

vii. The existence on any proprietary assets within a composite.

Presentation and Reporting

The presentation and reporting requirements include;

i. There is an elaborate presentation and reporting template. The key element is that a firm is expected to present a minimum of 5 years performance or since inception if the firm has a shorter history and build up each year until it has a 10 year performance presentation. This should include;

a. Net of Fees or gross of fees (Explicit)

b. With effect from 1st January 2011, for incomplete initial years the performance for the first full 12 month period and for partial terminal years, the performance for the last 12 month period. (This obviates the option of annualizing)

c. Total Benchmark return, annually.

d. No of portfolios in each composite, assets in each composite

e. A ratio of composite assets to total assets for each period.

f. Measure of internal dispersion if composite has more than 5 portfolios for each year

ii. For periods starting after 1st January 2011 there should be a 3 year annualized standard deviation of returns covering both the composite and the benchmark. If the firm deems the standard deviation inappropriate or irrelevant, it has the option of producing an additional measure of dispersion.  (Possibly measures like range, interquartile range, coefficient of variation, downside variance.)

iii. There is explicit prohibition of linking compliant & non compliant presentations for periods after 1st January 2000.

iv. Carve outs (subsets of composites) to be reported using end year proportions for periods starting 1st January 2006 and ending before 1st January 2011.

v. Non Fee paying portfolios, bundled fee portfolios using end year proportions.

vi. No annualising returns of less than 1 year.

vii. With effect from 1st January 2011 composites with an incomplete end year should show the full year returns for the most recent 12 month period. Similarly composites with an incomplete start year should show the full year returns for the initial 12 month period.

viii. The standard deviation of returns as a measure of internal dispersion on an annual basis.

ix. Prohibits annualisation of returns, linking Non GIPS compliant numbers with GIPS complaint numbers

x. When a firm takes over the business of another entity whose portfolios have not been compliant, the non-compliant portfolios should be made compliant within 12 months, and integrated if decision making process around investments has remained intact. There are several considerations to establish if the decision making process has remained intact. Hence the team executing the decisions and the process and data used should be able to provide a continuing service.

The recommendations include the following:

i. That performance should also include gross of fee performance.

ii. Include (cumulative returns, equal weighted mean & media, quarterly monthly returns annualised composite)

iii. That the 3 year annualized standard deviation and return also be shown for periods starting before 1st January 2011.

iv. Inclusion of additional risk measures is recommended.

v. That more than 10 years data be presented.  And that the firm presents GIPS compliance for all historical periods and continue to build it to more than 10 years data.

vi. Quarterly updates of compliant presentation

Real Estate, PE, Wrap fee, SMA

There are specific requirements and recommendations for Real Estate investments, Private Equity investments and separately managed accounts. The elaborate GIPS provisions covering these are to supplement the earlier sections. They may be discussed in a subsequent article.

Valuation principles

The key aspect of valuation requirement in the 2010 GIPS is the concept of Fair Value rather than rigidly sticking to market values. This is in recognition that during times of financial stress when investors want to liquidate their securities in illiquid markets, the market value may be distorted. This recognises the possibility that market value may deviate from fair value.

“Fair Value” is understood to be the Value at which an asset can be exchanged between two willing participants acting objectively and prudently.

As long as the market remains liquid, this interpretation has no impact. For illiquid or lumpy markets a valuation hierarchy is prescribed as follows:

a. Prices of identical instruments in active market.

b. Prices of similar investments in active market.

c. Quoted prices of identical / similar investments in less active markets.

d. Markets based inputs, other than prices that are observable for this instrument (e.g. valuation multiples, payback period..etc.)

e. Subjective unobservable inputs, where markets are not active at measurement date.

For Real estate valuation, only a single value is to be used in investment portfolios (out of the possible alternatives provided by a valuer). The recommendation is to rotate valuer every 3 years.

Firms can use objective, observable, un-adjusted quoted market prices for identical investments on the measurement date, if available.

Advertising guidelines

The GIPS also stipulate clear advertisement guidelines. These guidelines only apply to entities that already comply with GIPS and they apply to all content that is addressed to more than a single prospective client including print and electronic formats. It is provided for a firm to include other information not required by GIPS as long as such information is not in conflict with GIPS and is not displayed more prominently than the GIPS advertisement.


Firms that claim compliance are encouraged to subject themselves to verification. This provides additional confidence in the claim of compliance. Verification however, does not ensure the accuracy of any composites (this is the domain of performance examinations). A verification certificate is only issued after establishing a firm complies with GIPS. If a firm fails the process, no certificate is issued. This should be carried out annually by a qualified independent third party. One objective of verification are to carry out an assessment of whether the firm has complied with GIPS composite construction requirements. The other is to establish whether the firm’s policies and procedures are designed to calculate and present performance in compliance with GIPS. Verification procedures are outlined in Chapter IV of the Handbook.

Beyond verification, firms are also encouraged to carry out performance examinations / composite testing. GIPS recommend that a compliant presentation is made available to each client, annually, that the broadest definition of the firm is used, that firms subject themselves to compliance verification as well as composite testing.


Firms should carry out periodic internal compliance checks to ensure continued compliance and are also encouraged to carry out composite testing.   This will require specialist skills in this area. The demand for such services will be derived from the industry trends with respect to GIPS compliance by investment management firms.


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