2020 GIPS® Standards – Evolving Real Estate Guidance

June 29, 2020

One of the objectives that was considered when the 2020 edition of the GIPS standards was drafted was to reduce the amount of asset class specific guidance. The goal was to homogenize the guidance as much as possible so that it could be applied more universally across asset classes. This objective was achieved to some degree – notably with regard to private equity – but, in other instances, requirements based on asset class could not be eliminated completely. One area in particular where this was the case was real estate. The primary reason why real estate specific guidance would not be removed from the GIPS standards completely is because of the valuation complexities associated with real estate.

For background, under the GIPS standards, real estate includes wholly owned or partially owned:

  • Investments in land, including products grown from the land (e.g., timber or crops).
  • Buildings under development, completed buildings, and other structures or improvements.
  • Equity-oriented debt (e.g., participating mortgage loans).
  • Private interest in a property for which some portion of the return to the investor at the time of investment relates to the performance of the underlying real estate.

Though real estate specific guidance still exists in the 2020 edition of the GIPS standards, the content related to real estate has been dramatically reduced. Notably, the 2010 edition of the GIPS standards included a section completely dedicated to real estate and a guidance statement specific to real estate was also published. However, in the 2020 edition of the GIPS standards, there is no longer a dedicated real estate section and the guidance statement has been retired.

In the 2010 edition of the GIPS standards, the section dedicated to real estate included specific requirements related to the frequency at which real estate investments were required to be valued. Specifically, real estate investments were required to be valued as least quarterly, as of each quarter end or the last business day of each quarter. The quarterly valuations could be performed internally (by the firm) or externally (by a third party, such as an independent appraiser).

Additionally, real estate investments were required to receive an external valuation at least once every 12 months – unless a written agreement with the client stipulated less frequent valuations. However, at minimum, external valuations were required to be obtained for all real estate investments at least once every 36 months. There were no caveats or exceptions for the type of investment portfolio in which the real estate investments were held or alternate forms of valuation allowed.

Under the 2020 GIPS standards, real estate investments fall under the broad category of “private market investments.” In addition to real estate, private market invests include other real assets, private equity, and similar investments that are illiquid, not publicly traded, and not traded on an exchange. With respect to internal valuations, when private market investment portfolios are included in composites that present time-weighted returns, the private market investments must be fair valued at least quarterly, as of quarter end or the last business day of the quarter. This is aligned with the requirements specific to real estate in the 2010 edition.

While the 2020 edition of the GIPS standards recommends that private market investments should have an external valuation at least once every 12 months, external valuations for private market investments in general are not required at any frequency. However, this general recommendation was concluded to not be sufficient for real estate, which led to need for valuation provisions specific to real estate to be added.

Unlike in previous editions of the GIPS standards, the requirements related to external valuation for real estate investments are bifurcated based whether the investments are held in open-end funds or not. Open-end funds do not have a fixed number of investors and are open for subscriptions and redemptions. Real estate investments that are held in open-end real estate funds must now receive an external valuation at least once every 12 months, without exception. The caveat for delaying external valuations up to 36 months when stipulated by the client has been removed, as such a scenario would not be applicable to an open-end fund. An open-end fund has multiple investors who, by choosing to invest, agree to the terms of the fund, rather than a single client who can direct the manner in which a portfolio will be managed or mandate things such as the frequency of valuation.

For real estate investments that are held outside of open-end funds, the exception that permits external valuation once every 36 months based on client direction remains. Further, an additional option of relying on a financial statement audit rather than an external valuation has been introduced. If the real estate investments are subject to an annual financial statement audit performed by an independent, qualified (i.e., professionally designated, certified, or licensed) accounting firm, then the firm may rely on valuations covered within the scope of the audit rather than obtaining external valuations. The financial statement audit may be at either the property level or portfolio level. If the firm relies on valuations from financial statement audits, this fact must be disclosed in the applicable GIPS Reports.

The 2020 edition of the GIPS standards also stipulates that external valuations for real estate investments must be performed by an independent third party who is a professionally designated or certified commercial property valuer or appraiser. In markets where these professionals are not available, the firm must take necessary steps to ensure that only qualified independent property valuers or appraisers are used. Firms are also prohibited from using external valuations for real estate investments when the valuer’s or appraiser’s fee is contingent upon the investment’s appraised value.

There have also been some key changes to the type of return measures that must be presented related to real estate products. Under the 2010 edition of the GIPS standards, real estate composites were required to present total returns (returns including realized and unrealized gains and losses plus income) as well as the individual component returns – the capital return and the income return. The capital return factors only the change in the value of the assets, adjusted for capital expenditures and net proceeds from sales. The income return, on the other hand, isolates only the income earned on investment during the measurement period. Under the 2020 edition of the GIPS standards, firms are still recommended to present the component returns of both the composite and its associated benchmark, but are not required to do so.

Additionally, historically the GIPS standards required time-weighted returns to be reported for many real estate products. The use of money-weighted returns was reserved for private equity and closed-end real estate products, but those limitations have been removed from the 2020 edition, opening the door for broader potential use of money-weighed returns for real estate portfolios. The option to present time-weighted returns remains, but firms now have the additional option of presenting money-weighted returns in situations where the firm has control over the timing of external cash flows into the portfolios in the composite or the pooled fund and the product also has one of the following characteristics: (1) closed-end, (2) fixed life, (3) fixed commitment, or (4) illiquid investments are a significant part of the investment strategy. Each firm will need to evaluate and determine what the appropriate return measure is for their real estate products.

Even as the GIPS standards move toward more uniform guidance, it is important to remember that real estate in particular has many unique complexities related to it. Because of this, it is likely that some degree of dedicated real estate guidance and requirements will always be necessary.

2020 GIPS® standards – Explanation of the Provisions

February 24, 2020

CFA Institute issued the 2020 edition of the GIPS® standards on June 30, 2019 and since has been working on drafting explanations for each provision. From this effort, Explanations of the Provisions in Sections 1, 2, and 3 of the GIPS® Standards for Firms were finalized and released earlier this month. The information included within these explanations is vast. GIPS®-compliant firms will need to consider all of the detail outlined in the explanations when adopting the 2020 GIPS® standards. Notably, there are several references to policies and procedures that must be in place and requirements that compliant firms must follow when distributing performance outside of the GIPS® Report.  Below are links to the PDF copies of the Explanation of the Provisions for the first three sections. It is expected that explanations on the remaining provisions will also be released soon.

As a reminder, firms will no longer be able to comply with the 2010 GIPS® standards and will instead need to adopt the 2020 GIPS® standards once performance for periods ending on or after December 31, 2020 is included in GIPS® Reports. Until the firm meets all applicable requirements of the 2020 edition on a firm-wide basis, it must continue to comply with the requirements of the 2010 edition. Adopting the 2020 GIPS® standards includes addressing all interpretative guidance issued by CFA Institute. We are working with firms to amend their policies and procedures in advance of the deadline, as it is acceptable to adopt the 2020 edition of the GIPS® standards early but only once a firm meets all applicable requirements.

Explanation of the Provisions

SEC Proposes to Modernize the Advertising Rule

November 5, 2019

On November 4th, the U.S. Securities and Exchange Commission (SEC) announced proposed amendments intended to modernize the rules under the Investment Advisers Act related to investment adviser advertisements and payments to solicitors. Neither rule has been amended significantly since they were introduced in the 1960s and 1970s, respectively.

The advertising rule amendments would replace the current rule with principles-based provisions. Specifically, the amendment proposes specific requirements for firms to follow if presenting:

  1. Testimonials,
  2. Endorsements,
  3. Third-party ratings, and
  4. Actual and hypothetical performance results, with different requirements based on an advertisement’s intended audience.

To meet the business and investor needs, advisers often rely on No-Action Letters (NALs) to provide guidance on how to approach advertising. The SEC’s press release indicated that staff will be reviewing relevant NALs to determine whether any should be withdrawn in connection with any adoption of the proposed amendments.

Action Item: Here is your opportunity to provide feedback on regulation that will impact all investment advisers, including traditional asset managers, hedge funds, and private equity firms. The public comment period is open for 60 days following publication of the proposal in the Federal Register.  Click here for more information.

Implementing 2020 GIPS® standards

September 3, 2019

After years of development, the 2020 edition of the Global Investment Performance Standards (the “2020 GIPS® standards) has been finalized and is now available to the public through the CFA Institute website. The effective date for the 2020 GIPS standards is January 1, 2020, which means that firms that claim compliance need to be prepared to adopt and implement the bulk of the changes at that point. We have been assisting firms to conduct a gap analysis to identify the changes that will impact their firm and determine how to address all the new provisions detailed within the 2020 GIPS standards. We have also been working with firms who are seeking to claim GIPS compliance for the first time. Since they have not claimed GIPS compliance in the past, we are helping them to implement the 2020 edition of GIPS standards – even for some firms that expect to claim GIPS compliance by the end of third quarter. At this point, we don’t believe there is a good reason for these firms to adopt the 2010 edition since the 2020 edition is now available.

One key thing that firms that currently claim GIPS compliance will need to do is review their firm’s GIPS-compliance policies and procedures (GIPS P&P) to determine which changes impact their program. For example, if the firm doesn’t manage pooled funds, then the provisions applicable to pooled fund managers won’t be don’t need to be addressed in the firm’s GIPS P&P. But if the firm manages overlay portfolios, then the firm will need to address the provisions related to the calculation of overlay exposure. Going through all the provisions and confirming which are applicable is a good first step. In addition, amendments will need to be made to the terminology that is used throughout their GIPS P&P. For example, “compliant presentations” are now referred to as “GIPS Reports.” Firms should also update any references to specific GIPS provisions to reflect any changes in wording and to use new reference identifiers. For example, provision 0.A.9 in the 2010 edition is now provision 1.A.11 in the 2020 edition. Additionally, if the firm has incorporated disclosure checklists or other reference materials as part of their GIPS policies and procedures, these will need to be updated in order to match the revised requirements. We prepared a checklist to assist firms who need to update their GIPS compliance program to comply with the requirements of the 2020 GIPS standards. Click here to view the checklist.

2020 GIPS® Standards – Use of Carve-Outs

August 1, 2019

Under the 2020 GIPS standards, firms are allowed to include carve-outs with allocated cash in composites. This is very positive news as firms often have a desire to demonstrate the performance of sub-strategies that are offered as standalone portfolios or components of multi-strategy portfolios. It is expected that a greater number of advisers, including private wealth managers and firms who manage private market investments, will find the options available to be more favorable than what was available under the 2010 GIPS standards.

A carve-out is a portion of a portfolio that is, by itself, representative of a distinct investment strategy. It may be used to create a track record from multi-strategy portfolios for a narrower mandate. It is common for a firm to manage several asset classes for a client and those assets will be held in one balanced/multiple asset class portfolio. Presenting the track record of these portfolios in one composite doesn’t always produce a meaningful representation of the firm’s track record since each portfolio often varies significantly.  Even when firms have created target asset allocation balanced/multiple asset class composites, the results of such composites do not always represent the strategy that is offered to a prospective client. This is because of the customization that is done for each portfolio to address the specific objectives and needs of the client. In these situations, the construction of carve-out composites is much simpler, more intuitive, and can provide more meaningful information to prospective clients than a composite that represents the combined performance of a mix of blended portfolios with diverse components and allocations.

Under the new guidance, firms will be able to present the performance of a specific asset class and create a meaningful track record that is representative of an investment strategy that the firm offers. Types of carve-outs other than those based strictly on asset class could include specific sectors, industries, market cap size ranges or style types. The 2020 edition of the GIPS standards provides guidance on calculation, presentation and reporting carve-out composite performance.  We are working with a number of clients to implement these requirements.


Firms Must Comply Before They Verify

March 20, 2019

 Complying with the Global Investment Performance Standards (GIPS®) is not a one‐time project that, once completed, can be checked off a firm’s to‐do list and set aside. GIPS compliance is an ongoing process that requires continuous maintenance and updates. Even if a firm receives a third‐party GIPS compliance verification, ongoing compliance cannot be ensured. GIPS verification is conducted at a particular point in time and is based on a review of a relatively small subset of the firm’s data. In order to effectively maintain compliance on an ongoing basis, firms should not rely entirely on their verification – they should also establish internal procedures and controls to monitor whether their GIPS compliance program is working as intended.

Implementing the below procedures will help ensure that your firm is meeting the ongoing obligations associated with claiming compliance with the GIPS standards:

  • Timely Processes: Actively maintain your composites – not just once a year or when preparing for verification. The more frequently you update and review your composites (ideally, on a monthly basis), the more accurate they will be and the easier the process will become.


  • Oversight: Implement a comprehensive review process to assess the accuracy of composite construction. This should involve testing the treatment of all new accounts, closed accounts, and accounts that experience strategy changes. There should also be a process for evaluating ongoing composite placement, such as reviewing performance outliers – composite members that perform in a manner that is materially different from the rest of the composite – to ensure that they continue to be included in appropriate composites.


  • GIPS Policies and Procedures: Review and update your GIPS policies and procedures manual on at least an annual basis. Ensure that your manual not only addresses what is done to maintain compliance (the policies) but also how compliance is maintained (the procedures) and that it keeps up with changes in your business.


  • Standard Operating Procedures: Separate from your GIPS policies and procedures manual, you should document standard operating procedures (SOPs) to outline step‐by‐step instructions for updating composites and presentation materials (including the different processes that are done monthly versus after year‐end). The SOPs should outline the systems used, sources for information, people involved and performance analysis that is conducted before performance is distributed.


  • Stay Current: Monitor for any changes to the GIPS standards that may impact your firm, as well as changes to the regulatory requirements applicable to performance  advertising. This could include signing up for email alerts, attending webinars or conferences, and having regular dialogue with your consultants and verifiers.


We can help you to create and maintain a GIPS compliance program. Click here to learn more about our Services.

Timeline Revisions for GIPS® 2020

April 18, 2018

On April 18, 2018, CFA Institute announced some significant developments related to the timeline for GIPS 2020, the next edition of the GIPS standards, as well as the status of several guidance statements that are currently pending adoption.

First, it was announced that the development of GIPS 2020 is on schedule and a list of significant upcoming dates was provided:

  • August 31, 2018 – the GIPS 2020 Exposure Draft is expected to be issued for public comment, excluding the section on verification.
  • October 31, 2018 – an exposure draft of the verification section of GIPS 2020 will be issued separately for public comment.
  • December 31, 2018 – both comment periods will close.
  • June 30, 2019 – the final version of GIPS 2020 is expected to be adopted and released.
  • January 1, 2020 – GIPS 2020 will become effective. Any new requirements will need to be implemented by GIPS-compliant firms and incorporated into any firm materials that include performance results for periods beginning on or after January 1, 2020.

Additionally, it was announced that all guidance statements that have been issued for public comment but that have yet to be formally adopted and/or made effective will be delayed until following the completion of the GIPS 2020 project. These include:

  • Guidance Statement on Broadly Distributed Pooled Funds
  • Guidance Statement on Overlay Strategies
  • Guidance Statement on Risk
  • Guidance Statement on Benchmarks
  • Guidance Statement on Supplemental Information
  • Guidance Statement on Verifier Independence

The delayed adoption of these guidance statements should not be interpreted as implying that the proposed changes that they address will be discarded. Rather, the key concepts addressed in the proposed guidance statements will be incorporated into the GIPS 2020 exposure draft. The GIPS 2020 development process is then, in turn, expected to introduce new concepts that will feed back into the final versions of the guidance statements, which will be adopted following the completion of GIPS 2020.

For more information, please see the notice published on the GIPS standards website: https://www.gipsstandards.org/news/Documents/april2018.pdf

CalPERS Adopts GIPS® standards

March 12, 2018

CalPERS Adopts the GIPS standards

It was recently announced that the California Public Employees’ Retirement System (CalPERS) adopted the GIPS standards. Adhering to the GIPS standards is a voluntary commitment and considered industry best practice for investment performance calculation and presentation. As one of the largest pension plans in the U.S., CalPERS saw benefit in applying the GIPS standards to their own performance reporting processes despite not having the marketing incentives that often drive traditional investment managers to claim compliance. Though pension plans like CalPERS do not have clients in the traditional sense, they do have stakeholders that they report investment performance to. By adopting the GIPS standards, CalPERS is making a commitment to provide those stakeholders with performance information that adheres to industry accepted standards. The GIPS requirements for asset owners include documenting policies and procedures that establish how the GIPS standards are applied and compliance is maintained, including policies on performance calculation, treatment of fees, valuation principles, error correction and performance presentation. It is anticipated that by CalPERS taking on this initiative that other asset owners will follow as will advisers who manage pension plan assets.

How many firms comply with GIPS standards?

February 26, 2018

More Than 1,650 Firms Now Claim GIPS Compliance

Firms that comply with the GIPS standards are required to report to the CFA Institute annually, which allows CFA Institute the ability to track the number of firms that are currently claiming compliance. In an increase from last year, 1,653 firms now claim compliance with the GIPS standards. Of those firms, 1,440 opted to undergo an independent GIPS verification. Compliant firms also have the option to have their name listed on the GIPS website. Currently, 90% of the firms that claim compliance elect to have the name of their firm listed on the GIPS website to publicly display their commitment to industry best practices for performance presentation.

GIPS Pooled Fund Guidance Delayed

November 22, 2017

Effective Date Delayed for GS on Broadly Distributed Pooled Funds

The GIPS Executive Committee has decided to delay the effective date of the Guidance Statement on Broadly Distributed Pooled Funds. The Guidance Statement was scheduled to become effective on January 1, 2018, but the effective date has now been pushed back to January 1, 2020 in order to coincide with the anticipated effective date of the 2020 edition of the GIPS standards (GIPS 20/20). Firms should not interpret this delay as an indication that the guidance is expected to change in any way and firms are still strongly encouraged to adopt the guidance in advance of the effective date.

GIPS 20/20 Update

September 22, 2017

The 21st Annual Global Investment Performance Standards (GIPS®) Conference was held in San Diego, California, on September 14-15, 2017. A significant focus at the conference was on GIPS 20/20, the next version of the GIPS standards that is currently in development. Two sessions were dedicated to the topic — one focusing on pooled funds and the other on composites — and the underlying themes of GIPS 20/20 ran through many of the other presentations as well. In addition, during the GIPS Executive Committee Open Meeting that preceded the conference, an update was provided on the feedback received from the GIPS 20/20 consultative paper.

While very little has been finalized so far, a clear direction on where the Standards are going is beginning to take shape. For firms that currently claim compliance and only manage separate accounts, the expectation at this point is that the impact should be quite minimal. Where the most significant changes are occurring are related to pooled funds, both broadly distributed and privately offered.

A suggestion being offered is that firms managing pooled funds may no longer be required to include them in composites. Firms would still have the option of including them if desired, but would no longer be obligated to include them in composites — similar to the current treatment for non-fee-paying accounts. For many firms, this would eliminate the need for a vast number of single account composites. Note, however, that the proposal is not expected to carry over to unique separate account mandates — if a separate account does not fit into one of the firm’s existing composites, it would still require the creation of a new composite.

The flipside of granting this new level of flexibility on the composite side is that new fund-specific requirements are expected to be implemented. Specifically, it is being suggested that compliant firms would need to maintain a complete list of funds that are managed by the firm — similar to the currently required list of composite descriptions — and make this list available to prospective fund investors. In addition, prospective investors for directly marketed products (i.e., funds that are not broadly distributed) will need to be provided with what is being referred to as a “GIPS Fund Report.” The specific content of this report has not yet been determined, but it is expected to be a streamlined, fund-specific version of a GIPS-compliant composite presentation.

An update on the timeline for GIPS 20/20 was also offered. An exposure draft is expected to be released to the public by the end of second quarter 2018 for an approximately four-month comment period. Following revisions based on the public comments, the goal is to have the final version approved and adopted by the GIPS Executive Committee by the end of secondary quarter 2019, with an effective date of January 1, 2020.

Compliance Framework for Advertising

June 30, 2017

The U.S. Securities and Exchange Commission (“SEC”) has not outlined many specific requirements related to how historical investment performance results should be calculated and presented in advertisements and other forms of marketing, but they do have several general expectations. Investment advisers registered with the SEC who advertise performance should establish objective criteria when constructing their performance track record. Such firms should develop a consistent process for calculating and presenting performance and have documented policies and procedures that address performance advertising. In addition, certain books and records must be maintained to support the performance record presented. There is also a general expectation that an adviser’s performance calculations and presentation practices should be consistent with best practices followed by others in the industry. 

Below are steps to consider for investment managers who intend to advertise performance results:

  • Develop policies and procedures to document the basis for constructing composites and calculating and presenting performance results. For firms seeking to adopt a GIPS compliance program, these policies must address how the firm will comply with all provisions of the GIPS standards.
  • Determine if current systems are sufficient to construct and calculate performance results or if additional systems will be necessary.
  • Confirm if records to support performance results are complete and accurate for the entire period for which performance will be presented.
  • Determine which portfolios are fully discretionary.
  • Determine which composites need to be constructed in order to capture all fee-paying, discretionary portfolios.
  • Determine composite placement for all fee-paying discretionary portfolios.
  • Document the firm’s complete list of composite descriptions.
  • Calculate and validate composite performance.
  • Create a policy for the frequency performance will be reported and the minimum information that will be provided to each prospective client. This helps ensure that there is no cherry-picking of select periods or stale information being presented.
  • Calculate and compile the statistical inputs for presentations.
  • Create and review compliant performance presentation materials.
  • Lastly, develop a framework to facilitate the creation of compliant performance presentations on an ongoing basis.

Firms have the option to either manage this process internally or they can outsource the composite construction and maintenance process. Regardless, the process should be documented so that the process is applied consistently.

GIPS EC Rings Nasdaq Closing Bell

January 26, 2017


In honor of the 30th anniversary of CFA Institute’s investment performance standards (GIPS® and their predecessor, AIMR-PPS®), CFA Institute staff and members of the GIPS Executive Committee (including one of Guardian’s principals, Arin Stancil, shown to the right of center, 2nd row, in the picture above) ring the Closing Bell at Nasdaq on January 26, 2017.


Photography by Christopher Galluzzo / Nasdaq, Inc.

Revised Guidance for Presenting Supplemental Information

December 12, 2016

Revised Guidance for Presenting Supplemental Information –  Public Comment Period Open

The revised Guidance Statement on the Use of Supplemental Information exposure draft has been released for public comment. This revised guidance provides new and more detailed interpretation on the treatment of performance and performance-related information both within and outside of a GIPS-compliant presentation. You can send your comments and feedback via email to standards@cfainstitute.org; the public comment period is open until 28 February 2017.

CFA Institute GIPS Notification Form Updated

March 24, 2016

The revised GIPS Compliance Form for notifying CFA Institute when firms claim compliance with the GIPS standards is now available. This update reflects the continuation of the requirement initiated in 2015. The form needs to be submitted to CFA Institute by all firms that claim compliance with the GIPS standards by June 30, 2016.  Keep in mind that if your firm completed the form last year, that does not fulfill your obligation for 2016.  Submitting the form is now an ongoing annual requirement in order to maintain compliance with the GIPS standards.

Following is a summary of the changes that were made to the form.


  • In the “Primary Contact” section, a new question was added stating that CFA Institute “would like to support your firm’s ongoing success” and asking whether they can contact you.  It expects a simple “yes” or “no” response, but it is a required element of the form.
  • Under the “Firm Information” section, there is a new question asking for the submission of the organization’s GIPS firm definition.  A text box is provided so that the specific language used by the firm can be provided.  This question is optional.
  • In the “Firm Type and Structure” section, there are additional geography related questions.  The first question asks where your firm operates. The firm can check a box indicating that the firm is “global” or can specify selected countries and regions from an extensive list of over 200 options. The form then asks if CFA Institute can display the locations where the firm operates on the GIPS website.  This is a required “yes” or “no” question.
  • Under the “Firm Assets and Investment Vehicles” section, the question related to firm’s GIPS Total Firm Assets is worded in the same manner as last year, but the drop down list with asset ranges to select from has been modified to be less granular at the lower range of assets but more granular on the higher end.

The full form is available at http://www.gipsstandards.org/compliance/Pages/compliance.aspx.

Lastly, the CFA Institute released summary statistics related to the findings from the information submitted last year. You can read about this at:  http://cfa.is/1UMQ0XF

GIPS® Tackles Mutual Funds

January 29, 2016

The GIPS standards are based on the principle of consistency and comparability of investment performance results. To achieve this objective, the Standards create a framework that firms which choose to claim compliance must abide by. This framework includes prescribed methodologies that firms must use when calculating performance and a standardized list of disclosures that must be included in presentation materials. What the GIPS standards do not offer is guidance that can be universally applied to all scenarios.  Many complex issues have yet to be fully addressed within the scope of the GIPS standards and, at this point, remain open to interpretation until further guidance is provided.  One such issue relates to the application of the GIPS standards to broadly distributed pooled funds, such as mutual funds.  However, the wait for guidance in this area appears to be coming to a close.


Today the GIPS Technical Committee made available for public comment the  Exposure Draft of the Guidance Statement on Broadly Distributed Pooled Funds. As the name of the document implies, this proposed guidance is only applicable to “broadly distributed pooled funds,” which it outlines as encompassing “pooled unitized investment vehicles with broad distribution (i.e., where there is typically no or minimal contact between the firm managing the pooled fund and prospective pooled fund investors).” In the U.S. market, this primarily means mutual funds.


The proposed guidance statement makes it clear that firms are not required to provide or offer a GIPS-compliant presentation to mutual fund investors. However, guidance is being proposed that requires certain information that will need to be included in both the official pooled fund document (e.g., prospectus) and in fund-specific marketing material that the firm prepares. The required items include the following:

  • The description of the pooled fund’s investment mandate, objective, or strategy.
  • An indication of the pooled fund’s risk, either a qualitative narrative or a quantitative metric, as mandated by local regulators. If local regulators do not require a specific risk measure, the firm may choose the risk measure to present.
  • Pooled fund returns calculated according to the methodology and for the time periods required by local laws and regulations. If local regulators do not mandate a specific calculation methodology or frequency of returns, the guidance introduces options for what information must be presented.
  • Benchmark total returns for the same time periods as the pooled fund and a description of the benchmark.
  • The currency used to express performance.


In addition, two other items are recommended:

  • Disclosure of sales charges and loads and whether these fees have been deducted from performance.
  • The GIPS Pooled Fund Claim of Compliance, which would read as follows: “XYZ Firm, the firm managing this pooled fund, claims compliance with the Global Investment Performance Standards (GIPS®). For more information about the GIPS standards, please visit www.gipsstandards.org.”


Note that this claim of compliance statement is different from both the claim of compliance required to be disclosed in a compliant presentation and the claim of compliance specified in the GIPS Advertising Guidelines.

If this guidance is adopted, meeting these requirements would completely satisfy the fund manager’s obligations related to providing information that adheres to the GIPS standards. Specifically, the fund manager would not be required to provide a GIPS-compliant presentation to prospective pooled fund investors. Additionally, an offer of a compliant presentation in an official pooled fund document or fund-specific marketing materials would neither be required nor explicitly recommended.

In our view, this is truly a new and different approach for the GIPS standards to take, because for the first time the focus is on something other than a composite as the vehicle for communicating investment performance results. We also believe this approach aligns with the idea that it is the firm that complies with the GIPS standards, not a particular investment strategy or marketing piece. The GIPS standards are about presenting performance results in a transparent, ethical, and consistent manner, and that applies regardless of what type of product you are selling.

We are eager to see how the industry embraces this proposed guidance.  We urge you to review the full document yourself and submit your comments to standards@cfainstitute.org.


To view the proposed guidance, visit the GIPS website.



New Appointments to GIPS® Committees

August 20, 2015

Earlier this month, CFA Institute announced the appointment of new members to the committees and country sponsor organizations responsible for oversight and development of the Global Investment Performance Standards (GIPS®). Congratulations to Arin Stancil, Principal at Guardian Performance Solutions, for being appointed to serve on the GIPS Executive Committee and Amy Jones, Principal at Guardian Performance Solutions, for her appointment to serve on the United States Investment Performance Committee (USIPC). The GIPS Executive Committee is the decision-making body for the GIPS standards and the USIPC is the official country sponsor for the GIPS standards in the United States, responsible for promoting the adoption and implementation of the GIPS standards throughout the United States. For more information click here.

Variations of Hypothetical Performance

July 31, 2015

Investment advisers will often use hypothetical performance results to market their investment track record.  One common reason this is done is when a firm is trying to launch a new strategy that they do not currently manage assets for.  Another reason could be that the manager feels that the hypothetical portfolio represents the purest version of their investment strategy (free from the noise caused by client restrictions and cash flow activity).

While the use of hypothetical information in marketing materials is not prohibited, it is generally highly scrutinized by regulators and requires clear and specific disclosure. Most advisers that use hypotheticals are perfectly fine with making these disclosures and labeling their results accordingly. The problem that we see is that many advisers don’t realize that what they are presenting is considered hypothetical information and, as result, they neglect to include the necessary disclosures.

The confusion is caused because many individuals have a somewhat limited view of what constitutes hypothetical performance.  The common interpretation is that hypothetical performance depicts results that do not represent actual trading of securities (i.e., a “paper portfolio” that does not hold any real assets). While this is an accurate definition, it doesn’t necessarily tell the whole story. A more comprehensive definition would be expanded to include results that do not represent actual trading of securities or involve assumptions that produce results that are not reflective of an actual investor’s experience. Performance information may be based on a foundation of actual results, but if assumptions are added to the calculations which cause the results to differ from what actual clients would have experienced, the information becomes hypothetical.

Some examples of the various types of hypotheticals are outlined below:

Model Portfolio Results

  • A model portfolio is generally thought of as a paper portfolio that does not hold any actual assets and is commonly understood to be hypothetical. It does not reflect actual trading of securities or the management of real assets, but investment decisions are typically made and documented in real time to best reflect how an actual portfolio would be managed.

Backtested Results

  • A backtest is a model portfolio that is constructed retroactively with the benefit of hindsight. It involves applying a model to historical financial data in order to produce results that reflect investment decisions that theoretically would have been made if the strategy had actually been employed during the historical time periods.

Actual + Model or Index Results

  • Often advisers will want to show how their strategy would have performed when combined with other strategies or asset classes. For example, a fixed income manager may want to show how combining their strategy with an equity portfolio would have impacted the overall performance of the combined portfolio.  To approximate this, the manager may aggregate their performance with a fixed percentage allocation to an equity index, like the S&P 500.  Even though the fixed income portion of the combined portfolio represents actual performance, combining the results with those of the S&P 500 creates a hypothetical return series since it does not reflect how actual assets were being managed.

Actual + Actual Results

  • This is probably the most confusing one to many people. Consider a manager with two distinct investment strategies, Strategy A and Strategy B.  The manager offers the strategies separately or in combined portfolios with varying asset allocation targets. When meeting with prospective clients interested in a blended portfolio, the manager may elect to blend the performance of accounts managed to the dedicated investment strategies using the prospect’s intended asset allocation target (e.g., 50% of Strategy A combined with 50% of Strategy B) rather than present the results of actual blended accounts. Even though the components of the blend represent actual performance of accounts managed to those strategies, the combining of the strategies into one return series using an assumed asset allocation creates a hypothetical return.

If you have questions about whether your performance is hypothetical or if you need help ensuring your disclosures are complete and accurate, please contact us at info@guardianperformancesolutions.com.

Composite Management

May 29, 2015

Actually calculating composite performance is relatively straightforward once all the inputs are compiled. However, the tasks involved before the calculations can be performed can be daunting and time consuming depending on where data is stored and the technology available to construct composites.

Some firms utilize spreadsheets for calculating composite results while others rely on their portfolio accounting system which generally requires manual composite assignment. A trend we are seeing though is that more and more firms are utilizing composite management systems. A composite management system facilitates a systematic process to apply composite rules, construct composite membership, calculate returns and generate composite performance reports which can save time and improve the process. Firms that make the decision to use a system to maintain composites might do so because they have several years of performance history to construct or maybe the firm has a large number of accounts or complex composite rules that are difficult to maintain manually.


If you have questions about maintaining composite or the technology options available please contact us at info@guardianperformancesolutions.com.

Performance Disclosures

April 30, 2015

Firms that claim compliance with the GIPS® standards are also required to comply with all applicable laws and regulations. This can be a somewhat difficult task for SEC-registered investment advisers because (unlike the GIPS standards) the SEC doesn’t provide a specific list of required disclosures when advertising performance. There are, however, no-action letters that provide guidance and, if adhered to, can help firms to maintain compliance.

SEC-registered advisers should consider the following when presenting performance to prospective clients:

  • Disclose whether and to what extent the performance results reflect the reinvestment of dividends and interest.
  • Disclose the effect of material market or economic conditions on the performance results.
  • Disclose all material relevant factors when comparing results to an index.
  • Disclose that past performance is not a guarantee of future results.
  • If gross-of-fees returns are presented then:
    • Disclose that the client’s return will be reduced by advisory fees and other expenses.
    • Disclose a representative example such as a table, chart, graph or narrative that shows the effect an investment advisory fee, compounded over a period of years, could have on the value of a client’s portfolio.


This is prepared solely for educational purposes. It is not legal or professional advice. Readers must not rely on it to provide such advice, either generally or with respect to a particular question or issue. You should reference this overview in conjunction with the GIPS standards and applicable regulatory rules and regulations. If you have questions what disclosures should be included when presenting performance please contact us at info@guardianperformancesolutions.com.

GIPS® Error Correction Survey Results Released

March 2, 2015

The United States Investment Performance Committee (USIPC), in conjunction with CFA Institute, recently conducted a survey to seek input on error correction policies and procedures used by firms that comply with the Global Investment Performance Standards (GIPS®). The purpose of the survey was to inform the investment industry on how firms develop and administer their GIPS® standards compliance programs with respect to such policies and procedures.


The survey covered a range of error correction related topics including:

  • Are error correction policies being applied on a composite-specific or firm-wide basis?
  • Are performance errors being evaluated in absolute terms or relative terms?
  • Are non-performance related errors being addressed in error correction policies?
  • What are typically materiality thresholds being applied for various asset classes?


An executive summary that analyzes the results of the survey is available on the GIPS® Standards Website.

This is a great opportunity to examine your error correction policies and procedures to confirm they are adequate.

For more information, please contact us at info@CompliantPerformance.com.


GIPS® Compliance Notification Form Released

February 16, 2015

The GIPS® Executive Committee recently approved the new requirement for firms that claim compliance with the GIPS® standards to notify CFA Institute of such claim. In order to adhere to this requirement, firms that claim compliance with the GIPS® standards will be required to submit certain information to CFA Institute on an annual basis. The purpose of this new requirement is to allow CFA Institute to gather accurate information related to the number, location, and types of firms that claim compliance with the GIPS® standards.

The information must be submitted through an online form that is now available through the GIPS® website via the following link: http://www.gipsstandards.org/compliance/Pages/compliance.aspx

Details that firms are required to submit include:

  • Contact information for a primary individual responsible for GIPS® compliance at the firm
  • The name of the firm
  • Firm address
  • Whether the firm has a website
  • Whether CFA Institute can display the firm name and website address on the GIPS® website
  • Whether the firm has been verified within the last 24 months

The requirement became effective January 1, 2015, with firms having until June 30, 2015 to submit the form.

Firms should update their compliance calendar and GIPS® policies and procedures to ensure that this form is submitted annually.

For more information, please contact us at info@CompliantPerformance.com.

Reporting Firm Assets Under Management

January 14, 2015

For some firms, the assets under management (AUM) reported for GIPS® compliance purposes is different from the AUM reported in regulatory filings such as Form ADV. This is because the requirements related to the accounts that must be included — and how the value of those accounts are measured — differ for a number of reasons. For example, when reporting GIPS® AUM it must be presented net of leverage and is not allowed to be grossed up as if the leverage did not exist, which conflicts with some regulatory filing requirements.

Also, when updating compliant presentations, it is important to confirm that the firm’s AUM is consistent with the scope of the definition of the firm and doesn’t include accounts outside of that scope. In addition, be sure that advisory-only assets — assets that the firm doesn’t have authority to execute trades for — are excluded from the firm AUM that is reported for GIPS® compliance purposes.


Create and maintain a list of all accounts with the corresponding market values used to calculate the year-end firm AUM. It is important to maintain this list as part of the firm’s books and records, as data may change in a firm’s system and the list can be used to support the AUM total reported.

Considerations for Ongoing GIPS® Compliance

January 2, 2015

Compliance with the GIPS® standards is not a one-time exercise that, once completed, can be permanently checked off a firm’s to-do list.  Once GIPS® compliance has been achieved, it is essential to maintain compliance on an ongoing basis. There are tasks that must be completed on a monthly and annually basis in order to maintain compliance. 


Portfolio Performance Calculations

  • Compile and calculate portfolio returns
  • Review returns for accuracy (test on a sample basis)
  • Load portfolio returns into composite management system

Composite Construction

  • Compilation/review of composite membership list
  • Identify new, terminated and changed accounts and confirm appropriate composite assignment
    • Confirm supporting documentation is on file for membership changes

Read more

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