GIPS Pooled Fund Guidance Adopted

April 3, 2017

The GIPS Executive Committee has adopted the long-awaited Guidance Statement on Broadly Distributed Pooled Funds. This guidance was developed primarily to address the fundamental question as to whether firms that claim compliance with the GIPS standards are required to distribute GIPS-compliant presentations to prospective pooled fund investors. It clearly illustrates that the answer to this question is “no” (at least for funds that would be considered “broadly distributed”) and also goes on to establish a minimum baseline with respect to information that should be provided to prospective pooled funds investors when a standard GIPS-compliant presentation is not applicable.

The adopted guidance includes some significant changes from the exposure draft that was issued for public comment, including:

  • The final guidance provides better clarity regarding the scope of funds that the guidance will be applicable to. In particular, the guidance clarifies that “broad distribution” does not necessarily mean that a product is only sold without direct contact with investors. A fund would still be considered broadly distributed (and, therefore, subject to the requirements of the guidance statement) if the fund manager occasionally interests directly with prospective investors, so long as the typical sales process does not involve direct contact.
  • Rather than mandating that required information be included in both official fund offering documents and fund-specific marketing materials, the final guidance only requires the information to be included in one or the other.
  • It also has reduced the number of required disclosures and statistics that must be included in materials by relegating benchmark returns to recommended information status. This was done to better align the guidance with the minimum regulatory precedent established throughout most of the developed world and to ease the perceived additional burden being placed on fund managers that operate in highly regulated markets where they are already subject to robust reporting requirements for their pooled funds
  • A “safe harbor” provision has also been added which outlines that CFA Institute is offering to review, upon request, the legal and/or regulatory regimes that firms may be subject to and determine whether they already have requirements related to pooled funds that mirror those of this guidance statement. Firms that operate under these regimes should then have confidence that, as long as they are meeting their legal and regulatory requirements, they are also satisfying the GIPS requirements under this guidance statement and no further action by the firm would be necessary. CFA Institute will make the list of approved regulatory regimes publicly available and, though no specific regimes have been identified as of yet, it will almost certainly include the SEC and FINRA.

The new guidance will be effective January 2018. A full version of the final guidance statement is available on the GIPS website at: https://www.gipsstandards.org/standards/Documents/Guidance/gs_pooled_funds.pdf

In addition, a summary of the key differences between the exposure draft and the final guidance statement is available at: https://www.gipsstandards.org/standards/Documents/Guidance/pooled_funds_differences_btwn_exposure_draft_and_gs.pdf