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.