GLOBAL - Revisions to the Global Investment Performance Standards (GIPS) will come into force in January 2011 requiring fund managers to publish a compliance statement on how they have met the GIPS standards and whether they have been verified.

The GIPS are designed to provide a voluntary set of best practice for calculating and presenting investment performance - comparable among investment firms regardless of location - and are updated regularly, with the last review initiated in 2008.

Following the results of that review, the 2010 GIPS have been updated to include new requirements on fund managers to state the risks taken to achieve investment performance. This means managers will have to present the standard deviation of monthly returns of both the composite and the benchmark. From next year, they will also be required to present assets on a fair value basis where no market value is available.

Launched by the CFA Institute, in tandem with UK Investment Performance Committee (UKIPC), the new GIPS will come into force from 1 January 2011 with the support of partner organisations in 32 countries.

Jonathan Boersma, executive director of the GIPS standards at CFA Institute, said: "While compliance is voluntary, investors are increasingly demanding that firms comply. Firms that do not report their investment performance according to the GIPS standards are often excluded from competitive bids."

He continued: "By adhering to a universal set of standards, investors are better served because firms are required to fully disclose their past performance based on the same criteria. This assists the investor in making fair comparisons when selecting an investment firm."

The provisions of the GIPS are split into nine sections - Fundamentals of Compliance; Input Data; Calculation Methodology; Composite Construction; Disclosure; Presentation and Reporting; Real Estate; Private Equity; and Wrap Fee/Separately Managed Account (SMA) Portfolios - which are then divided into requirements and recommendations.

Fund managers wishing to adopt the standards must meet all the requirements to claim they are compliant, but are also encouraged to adopt as many of the recommendations as possible.
 
Ray Martin, chairman of UKIPC - a UK organisation sponsored by the NAPF, ABI and IMA - said: "The new GIPS standards will make it easier for investors to get the best value from their investment managers. Consistency in measuring the investment performance of asset managers on a consistent basis is crucial to helping investors make better manager choices and ultimately ensuring better returns for their members."
 
The new standards can be found at http://www.cfapubs.org/toc/ccb/2010/2010/5.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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